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. 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	Activity	Overhead	Expected Activity
Cost Pool	Measure	Costs	Product A	Product B	Total
Activity 1	number of setups	$14,487	500	600	1,100
Activity 2	machine hours	$64,800	2,500	500	3,000
General Factory	direct labor hours	$12,736	240	100	340
Total		$92,023

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

		$37.46
		$21.60
		$13.17
		$270.66

The overhead cost per unit of Product B under the traditional costing system

		$54.13
		$7.49
		$4.32
		$2.63

.   The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing system is closest to:

		$28.97
		$13.17
		$83.66
		$24.15

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

		$86.97
		$70.79
		$81.20
		$11.24

Answer 1

1) Predetermine overhead rate = 92023/340 = 270.66

So answer is d) $270.66

2) Product B Overhead cost per unit = (270.66*100)/500 = 54.13

So answer is a) $54.13

3) Overhead rate for activity 1 = 14487/1100 = 13.17

So answer is b) $13.17

4) Product A overhead cost per unit

	Product A
Activity A	13.17*500 = 6585
Activity B	21.60*2500 = 54000
General factory	37.46*240 = 8990.40
Total overhead	69575.40
Unit	800
Overhead cost per unit	86.97

So answer is a) $86.97