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

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Definitions:

Intermediate Disturbance Hypothesis

A concept in ecology suggesting that biodiversity is highest when ecological disturbances occur at a moderate level, neither too rare nor too frequent.

Species Diversity

The variety and abundance of different species within a specific region or ecosystem, reflecting the number of species and their relative numbers.

Moderate Disturbances

Environmental or ecological changes of a medium intensity that can affect ecosystem dynamics.

Fertile Soil

Soil that is rich in nutrients and minerals, ideal for growing plants and crops.