Question

Adelberg Company has two products: A and B. The annual production and sales of Product A is 1,850 units and of Product B is 1,250 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 $ 100,500.

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 Order Size-with estimated overhead costs and expected activity as follows:

(Note: The Order Size activity cost pools costs are allocated on the basis of direct labor-hours.)

The predetermined overhead rate under the traditional costing system is closest to:

Multiple Choice

$ 8.04 per DuH

$ 39.66 per DLH

$ 77.01 t per DLH

$ 16.34 per DLH

Answer 1

	Adelberg Company
		(I)	(II)	(I)*(II)
	Product	Annual production and sales	Direct Labor hour per unit	Total Direct Labor hours
	A	1850	0.3	555
	B	1250	0.6	750
			Total	1305
		Estimated Overhead cost	100500
		Predetermined overhead rate under traditional costing=Estimated Overhead/Activity base(Direct Labor Hours)
Ans)		Predermined Overhead rate=($100500/1305)	77.01	per direct Labor Hours