Addison Company Has Two Products: a and B $\quad$ $\quad$

question 60

Multiple Choice

Addison Company has two products: A and B. Annual production and sales are 800 units of Product A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labour hours per unit and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for next period is $71,286.
The company is considering switching to an activity-based costing system for the purpose of computing unit product costs for externalreports. 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:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$
$\begin{array}{|l|r|r|r|r|}\hline\begin{array}{l}\text { Activity Cost } \\\text { Pool }\end{array} & \begin{array}{r}\text { Estimated } \\\text { Overhead Cost }\end{array} & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Activity 1 } & \$ 20,272 & 300 & 500 & 800 \\\hline \text { Activity 2 } & 29,380 & 800 & 500 & 1,300 \\\hline \text { General Factory } & \underline{21,634} & 160 & 420 & 580 \\\hline \text { Total } & \$ 71,286 & & &\\\hline\end{array}$

(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) $22.60
• B) $54.84
• C) $58.76
• D) $36.73

---

Definitions:

Medium To Expensive Price Range

Pricing strategy that positions products or services between the middle and higher end of the market.

High Quality

Describes products, services, or processes that meet or exceed predefined standards of excellence, demonstrating superior features or performance.

Unique

Being the only one of its kind; unlike anything else.

Housing Markets

The supply and demand for residential properties and the economic factors affecting the price and availability of homes.