The company is considering switching to an activity-based

Reference no: EM13571432

Addy Company has two products: A and B. The annual production and sales of Product A is 2,600 units and of Product B is 2,000 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-hours per unit. The total estimated overhead for next period is $108,775.

The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for external reports. The new activity-based costing system would have three overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

Activities	Estimated Overhead Costs	Expected Activity
Activities	Estimated Overhead Costs	Product A	Product B	Total
Activity 1	$33,611	1,900	1,500	3,400
Activity 2	19,144	2,600	1,100	3,700
General Factory	56,020	1,500	1,740	3,240
Total	$108,775

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)

The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to?

Reference no: EM13571432

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