Question

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:

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