Question

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 TotalActivity 1 $18,900 700 200 900Activity 2 15,631 1,000 100 1,100General factory 28,791 300 270 570Total $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) $10.50B) $55.55C) $25.26D) $7.112. The overhead cost per unit of Product A under the activity-based costing system is closest to:A) $25.26B) $73.44C) $42.21D) $55.55

Answer 1

1. B $55.55

2.

Step-by-step explanation:

1. The overhead cost per unit of product A under the traditional costing system

Overhead cost per unit = Estimated manufacturing overhead / Direct labor hours

= $63,332 / (570 × 0.5)

= $55.55 per unit

2. Activity rate