Question

Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 1,000 units of Product A and 800 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 $125,320.

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	$	52,000	1,300	700	2,000
Activity 2		26,880	1,400	700	2,100
General Factory		46,440	800	400	1,200
Total	$	125,320

(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:

Answer 1

• Overhead cost per unit of Product B under ABC system is closest to $ 53.30

	Total Overheads	Total Activity	Activity Rates per activity	No. of activity for Product B	Overheads allocated to Product B
	[A]	[B]	[C = A/B]	[D]	[E = C x D]
Activity 1	$                  52,000.00	2,000	$                                               26.00	700	$         18,200.00
Activity 2	$                  26,880.00	2,100	$                                               12.80	700	$            8,960.00
General factory	$                  46,440.00	1,200	$                                               38.70	400	$         15,480.00
	$                125,320.00	Total Overheads allocated			$         42,640.00
		Total Annual Production (units)			800
		Overhead cost per unit			$                  53.30