Question

Acton Company has two products: A and B. The annual production and sales of Product A is 800 units and of Product B is 500 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 0.2 direct labor-hours per unit. The total estimated overhead for next period is $92,023.

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:

Estimated

Activity

Overhead

Expected Activity

Cost Pool	Costs	Product A	Product B	Total
Activity 1	$14,487	500	600	1,100
Activity 2	$64,800	2,500	500	3,000
General Factory	$12,736	240	100	340
Total	$92,023

(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 1 under the activity-based costing system is closest to:

Select one:

a. $28.97.

b. $13.17.

c. $83.66.

d. $24.15.

The overhead cost per unit of Product A under the activity-based costing system is closest to:

Select one:

a. $86.97.

b. $70.79.

c. $81.20.

d. $11.24.

Answer 1

Answer :

1) B) $13.17

2)A) $86.97

1) Predetermined overhead rate for Activity 1 = Estimated Cost /Total Activity =14,4787/1,100 = $13.17 (Answer)

2) Overhead cost Per Unit of Prodcut A

OH Cost applied To Product A

Activty 1= 14,487/1,100*500= 6,585

Activity 2 =64,800 /3000*2,500 =54,000

Activity 3 =12,736/340 *240 = 8990

total overhead Aplied = 6585+54,000+8,990 = 69,575

Per Unit Cost = 69,575 / 800 = $86.97 Per unit