Addy Company Has Two Products: a and B

question 92

Multiple Choice

Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 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 factory overhead activity cost pools—Activity 1, Activity 2, and General Factory—with estimated overhead costs and expected activity as follows:

(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour hours.)
-(Appendix 5B) The predetermined overhead rate under the traditional costing system is closest to which of the following?

• A) $9.15.
• B) $19.08.
• C) $43.48.
• D) $84.43.

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Definitions:

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the additional satisfaction gained from consuming an additional unit decreases.

Plastic Bins

Containers made of plastic material used for storing or transporting items.

Door Hooks

Hardware items typically mounted on doors or walls for hanging or holding clothes, towels, and other items securely.

Marginal Utility

The added satisfaction or utility that a consumer receives from consuming one additional unit of a good or service.