Question

Adelberg Company has two products: A and B. The annual production and sales of Product A is 500 units and of Product B is 1,000 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $68,756 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:

Expected Activity Activity Cost Pools Activity 1 Activity 2 Order size Total Estimated Overhead Costs $ 31,031 22,249 15,476 $ 68,756 Product AProduct B 1,000 1,600 200 300 300 200 Total 1,300 1,900 400
(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:________.
a. $11.71 per DLH
b. $38.69 per DLH
c. $171.89 per DLH
d. $23.87 per DLH

Answer 1

Predetermined manufacturing overhead rate= $171.89 per direct labor hour

Step-by-step explanation:

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Total direct labor hours= (500*0.4) + (1,000*0.2)= 400 direct labor hours

Predetermined manufacturing overhead rate= 68,756 / 400

Predetermined manufacturing overhead rate= $171.89 per direct labor hour