Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,800 units of Basic Product and 1,400 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Basic Product requires 0.4 direct labor hours per unit and Deluxe Product requires 0.8 direct labor hours per unit. The total estimated overhead for next period is $99,035. 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: Estimated Expected Activity Activity Cost Pool Overhead Costs Basic Product Deluxe Product Total Activity 1 $ 30,588 1,500 400 1,900 Activity 2 17,460 2,200 350 2,550 General Factory 50,987 720 1,120 1,840 Total $ 99,035 (Note: The General Factory 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: Multiple Choice $53.82. $6.85. $38.84. $9.70.
Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,800 units of Basic Product and 1,400 units of Deluxe Product. The company has traditionally used direct labor-hours as the basis for applying all manufacturing
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:
| Estimated | Expected Activity | |||||||||
| Activity Cost Pool | Overhead Costs | Basic Product | Deluxe Product | Total | ||||||
| Activity 1 | $ | 30,588 | 1,500 | 400 | 1,900 | |||||
| Activity 2 | 17,460 | 2,200 | 350 | 2,550 | ||||||
| General Factory | 50,987 | 720 | 1,120 | 1,840 | ||||||
| Total | $ | 99,035 | ||||||||
(Note: The General
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
Multiple Choice
$53.82.
$6.85.
$38.84.
$9.70.
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