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Addy Company makes two products: Product A and Product B. Annual production and sales are 1,200 units of Product A and 800 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 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for the next period is $70,760. 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 Cost Product A Product B Total Activity 1 $25,840 1,300 400 1,700 Activity 2 11,152 1,200 160 1,360 General Factory 33,768 360 480 840 Total $70,760 The predetermined overhead rate under the traditional costing system is: a. $40.20. b. $8.20. c. $84.24. d. $15.20.

Addy Company makes two products: Product A and Product B. Annual production and sales are 1,200 units of Product A and 800 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 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for the next period is $70,760. 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 Cost Product A Product B Total Activity 1 $25,840 1,300 400 1,700 Activity 2 11,152 1,200 160 1,360 General Factory 33,768 360 480 840 Total $70,760 The predetermined overhead rate under the traditional costing system is: a. $40.20. b. $8.20. c. $84.24. d. $15.20.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Addy Company makes two products: Product A and Product B. Annual production and sales are 1,200 units of Product A and 800 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 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for the next period is $70,760. 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 Cost Product A Product B Total Activity 1 $25,840 1,300 400 1,700 Activity 2 11,152 1,200 160 1,360 General Factory 33,768 360 480 840 Total $70,760 The predetermined overhead rate under the traditional costing system is: a. $40.20. b. $8.20. c. $84.24. d. $15.20.
Transcribed Image Text:Addy Company makes two products: Product A and Product B. Annual production and sales are 1,200 units of Product A and 800 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 0.30 direct labor hours per unit and Product B requires 0.60 direct labor hours per unit. The total estimated overhead for the next period is $70,760. 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 Cost Product A Product B Total Activity 1 $25,840 1,300 400 1,700 Activity 2 11,152 1,200 160 1,360 General Factory 33,768 360 480 840 Total $70,760 The predetermined overhead rate under the traditional costing system is: a. $40.20. b. $8.20. c. $84.24. d. $15.20.
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