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

question 119

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 overhead cost per unit of Product B under the activity-based costing system is closest to: (Do not round intermediate calculations)

• A) $73.74
• B) $56.62
• C) $22.38
• D) $47.52

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Definitions:

Units Produced

Refers to the total quantity of goods manufactured by a business during a specific period.

Fixed Cost

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, or loan payments.

Cost Behavior

The manner in which a cost changes in relation to its activity base (driver).

Activity Changes

Variations or alterations in the level of operations, processes, or actions within an organization that can impact performance and outcomes.