Addy Company Has Two Products: a and B

question 67

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 overhead cost per unit of Product B under the activity-based costing system is closest to which of the following?

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

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Definitions:

Money

An economic unit that functions as a generally recognized medium of exchange for transactional purposes in an economy.

Reserve Requirement

The minimum amount of reserves that banks must hold, either in their vaults or with the central bank, as a proportion of deposits.

Excess Reserves

The surplus funds that banks hold over the required minimum set by the central bank to meet unexpected withdrawals.

Deposits

Funds stored in a bank or similar entity for security purposes that have the potential to accrue interest as time passes.