Reference: 05-01
Acton Company Has Two Products: a and B

question 26

Multiple Choice

Reference: 05-01
Acton Company has two products: A and B. The annual production and sales of Product A are 800 units and of Product B are 500 units. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour-hours per unit and Product B requires
0.2 direct labour-hours per unit. The total estimated overhead for next period is $92,023.
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: $$\begin{array} { | l | l | l | l | l | } \hline \text { Activity } & & { \text { Expected Activity } } \\\hline \text { Cost Pool } & \begin{array} { l } \text { Estimated } \\\text { Overhead } \\\text { Costs }\end{array} & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Activity 1 } & \$ 14,487 & 500 & 600 & 1,100 \\\hline \text { Activity 2 } & \$ 64,800 & 2,500 & 500 & 3,000 \\\hline \text { General Factory } & \$ 12,736 & 240 & 100 & 340 \\\hline \text { Total } & \$ 92,023 & & & \\\hline\end{array}$$ (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour-hours.)
-The overhead cost per unit of Product A under the activity-based costing system is closest to:

• A)$11.24.
• B)$86.97.
• C)$70.79.
• D)$81.20.

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Definitions:

Finished Goods

These are products that have completed the manufacturing process but have not yet been sold or distributed to the end customer.

Cost of Goods Sold

Cost of Goods Sold (COGS) is the direct costs attributable to the production of the goods sold in a company, including material and labor expenses.

Cost of Goods Manufactured

The total expense incurred from manufacturing goods, including materials, labor, and overhead, during a specific period.

Capital Expenditures

Capital utilized by a corporation to purchase, improve, and upkeep tangible assets like land, factories, or machinery.