Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 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 General Factory--with estimated overhead costs and expected activity as follows: (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

A) $13.91
B) $11.71
C) $74.16
D) $36.19

Question

Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 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 General Factory--with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.)
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

A) $13.91
B) $11.71
C) $74.16
D) $36.19

Frankie Martinez · Accepted Answer

Final Answer : B, Explanation :  To calculate the predetermined overhead rate (activity rate) for Activity 2 under the activity-based costing system, we need to divide the estimated overhead cost of Activity 2 by the expected activity for Activity 2.The estimated overhead cost for Activity 2 is $19,020, and the expected activity for Activity 2 is 1,620 machine-hours. Therefore, the predetermined overhead rate for Activity 2 is:$19,020 ÷ 1,620 machine-hours = $11.71 per machine-hourTherefore, the answer is B) $11.71.

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