Reference: 05-02
Addy Company Has Two Products: a and B

question 54

Multiple Choice

Reference: 05-02
Addy Company has two products: A and B. The annual production and sales of Product A are 1,700 units and of Product B are 1,100 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
0.6 direct labour-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:
$\begin{array}{|l|l|l|l|l|}\hline \text { Activity } & &{\text { Expected Activity }} \\\hline \text { Cost Pool } & \begin{array}{l}\text { Estimated } \\\text { Overhead Costs }\end{array} & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Activity 1 } & \$ 30,528 & 1,000 & 600 & 1,600 \\\hline \text { Activity 2 } & \$ 17,385 & 1,700 & 200 & 1,900 \\\hline \text { General Factory } & \$ 50,872 & 510 & 660 & 1,170 \\\hline \text { Total } & \$ 98,785 & & & \\\hline\end{array}$ (Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour-hours.)
-The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:

• A)$86.93.
• B)$51.99.
• C)$10.23.
• D)$9.15.

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Definitions:

Transferability

The ability of an asset to be transferred or converted easily from one individual to another without affecting its value.

Human Capital

A collection of proficiencies, knowledge, or invisible assets owned by individuals that can be leveraged to bring about economic prosperity for themselves, their work environments, or their community.

Compensating Differential

A difference in wages that compensates workers for undesirable aspects of a job, such as hazardous working conditions or undesirable hours.

Labor Supplied

The sum of hours employees are ready and available to work for a specified pay rate.