Question

Adelberg Company has two products: A and B. The annual production and sales of Product A...

Adelberg Company has two products: A and B. The annual production and sales of Product A is 2,300 units and of Product B is 1,700 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 $105,475.

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:

Estimated Expected Activity
Activity Cost Pools Overhead Costs Product A Product B Total
Activity 1 $ 32,592 1,600 1,200 2,800
Activity 2 18,564 2,300 800 3,100
Order Size 54,319 690 1,020 1,710
Total $ 105,475

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

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

Homework Answers

Answer #1

Answer------------$61.68 or $62

Working

(A) Estimated Manufacturing Overheads $ 105,475
(B) Estimated Direct labor hours                 1,710
C= (A/B) Predetermined Overhead rate $            61.68

.

Product A Product B Total
Units 2300 1700
Hours needed per unit 0.3 0.6
Total Hours 690 1020 1710
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