Question

Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 2,000 units of Product A and 2,000 units of Product B. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $107,650.

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:

			Expected Activity
Activity Cost Pool	Estimated Overhead Costs		Product A	Product B	Total
Activity 1	$	45,150	1,400	700	2,100
Activity 2		21,700	900	500	1,400
General Factory		40,800	800	400	1,200
Total	$	107,650

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

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

rev: 09_26_2019_QC_CS-182967

Multiple Choice

• $37.00

• $19.20

• $26.00

• $18.20

Answer 1

The correct answer is $18.20.

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Activity 1	Number of Activity	$        45,150.00	2100	$             21.50	Per Activity
Activity 2	Number of Activity	$        21,700.00	1400	$             15.50	Per Activity
General factory	Number of Direct labor hour	$        40,800.00	1200	$             34.00	Per Direct labor hour

.

Cost assigned to Product B
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Activity 1	$           21.50	700.00	$         15,050.00
Activity 2	$           15.50	500.00	$           7,750.00
General factory	$           34.00	400.00	$         13,600.00
Total Overheads assigned			$         36,400.00
Production			2,000.00
Overhead cost per unit			$ 18.20