Acklin Company has two products: A and B. Annual production and sales are 600 units of Product A and 900 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 0.5 direct labor hours per unit and Product B requires 0.3 direct labor hours per unit.
The total estimated overhead cost for the next period is $63,322.
The company is now considering switching to an activity-based costing system. 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 Overhead Expected Activity (Allocation Base)
Activity Pool Cost Product A Product B Total
Activity 1 $18,900 700 200 900
Activity 2 15,631 1,000 100 1,100
General factory 28,791 300 270 570
Total $63,322
(Note: The General Factory activity pool's costs are allocated on the basis of direct labor hours.)
1. The overhead cost per unit of Product A under the traditional costing system is closest to:
A) $10.50
B) $55.55
C) $25.26
D) $7.11
2. The overhead cost per unit of Product A under the activity-based costing system is closest to:
A) $25.26
B) $73.44
C) $42.21
D) $55.55
Answers: 2
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