Question

Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 1,000 units of Product A and 750 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 0.4 direct labor-hours per unit. The total estimated overhead for next period is $89,140. 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: Expected Activity Activity Cost Pool Estimated Overhead Costs Product A Product B Total Activity 1 $ 34,580 900 500 1,400 Activity 2 24,400 1,300 700 2,000 General Factory 30,160 500 300 800 Total $ 89,140 (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor-hours.) The overhead cost per unit of Product B under the

activity-based costing system is closest to

Answer 1

Answer is given below with working

Overhead cost allocated to product B as per ABC method $42.93 per unit Working notes: Total Activities Expected Activity Activity 1 Activity 2 General factory Total Overhead 900 Activity Cost Pool $34,580 $24,400 $30,160 $89,140 Product A Product B 5001 1,300 700 500 3001 Total Activity 1,400 2,000 800 Cost driver rate 1 a/b Total Activity activities Rate 1,400 $24.70 per activity driver 2,000 $12.20 per activity driver 800 $37.70 per direct labor hour Cost pool $34,580 $24,400 $30,160 Activity 1 Activity 2 General factory Allocation of overheads as per ABC Product A Activity 1 $22,230 Activity 2 $15,860 General factory $18,850 Total overheads allocated $56,940 Total output 1,000 Overhead cost per unit $56.94 Product B $12,350 (Activities consumed X Activity Cost rate) $8,540 $11,310 $32,200 750 $42.93