Question

Company X makes 2 products: Product A and Product B. Annual production and sales are 375 units of Product A and 400 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 0.8 direct labor-hours per unit and Product B requires 0.5 direct labor-hours per unit. The total estimated overhead for next period is $80,500.

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 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	$	45,600	1,300	700	2,000
Activity 2		19,800	1,000	500	1,500
General Factory		15,100	300	200	500
Total	$	80,500

(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:

Multiple Choice

• $36.00

• $71.50

• $19.10

• $76.30

Answer 1