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    Overhead rate

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    Acton Company has two products: A and B. The annual production and sales of Product A is 800 units and of Product B is 500 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labor hours per unit and Product B requires 0.2 direct labor hours per unit. The total estimated overhead for next period is $92,023. 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 overhead activity cost pools--Activity 1, Activity 2, and General Factory--with estimated overhead costs and expected activity as follows:

    Activity Cost Estimated Overhead Expected Activity
    Pool Cost
    ProductA ProductB Total
    Activity 1 $14,487 500 600 1,100
    Activity 2 $64,800 2,500 500 3,000
    General Factory $12,736 240 100 340
    Total $92,023

    A. The predetermined overhead rate under the traditional costing system is closest to: Choose the correct answer

    B. The overhead cost per unit of Product B under the traditional costing system is closest to: choose the correct answer
    C. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing system is closest to: Choose the correct answer

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    Solution Preview

    A. Predetermined overhead rate = Estimated Overhead/Estimated direct labor ...

    Solution Summary

    The solution explains how to calculate overhead rates