Markham Company Makes Two Products: Basic Product and Deluxe Product

question 143

Multiple Choice

Markham Company makes two products: Basic Product and Deluxe Product. Annual production and sales are 1,700 units of Basic Product and 1,100 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 0.3 direct labor hours per unit and Deluxe Product requires 0.6 direct labor hours per unit. The total estimated overhead for next period is $98,785.
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:
$$\begin{array} { l c c c c } & \text { Estimated } & { \text { Expected Activity } } \\& & \text { Basic } & & \\\text { Activity Cost Pool } & \text { Overhead Costs } & \text { Product } & \text { Deluxe Product } & \text { Total } \\\text { Activity 1 } & \$ 30,528 & 1,000 & 600 & 1,600 \\\text { Activity 2 } & 17,385 & 1,700 & 200 & 1,900 \\\text { General Factory } & 50,872 & 510 & 660 & 1,170 \\\text { Total } & \$ 98,785 & & &\end{array}$$
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(Note: The General Factory costs are allocated on the basis of direct labor hours.)
The overhead cost per unit of Deluxe Product under the activity-based costing system is closest to:

• A) $50.66.
• B) $26.09.
• C) $35.28.
• D) $38.16.

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Definitions:

Piston

An engine part that forms the lower section of the combustion chamber. Pressure is exerted on the top of the piston, forcing it down in the cylinder. This movement is transmitted through the connecting rod to the crankshaft. The term piston also refers to pistons used in hydraulic components, such as master cylinders, wheel cylinders, and calipers. The pistons in hydraulic components are used to apply pressure or force.

Bottom Dead Center

The lowest point that a piston reaches in its cylinder during its movement in an engine, opposite of top dead center.

Top Dead Center

The highest point a piston reaches in the cylinder of an engine during its compression stroke.

Overhead Camshaft Engines

Engines where the camshaft is located above the cylinder heads, directly operating the valves, which allows for more precise valve timing.