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Overhead rate

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
$37.46
$21.60
$13.17
$270.66

B. The overhead cost per unit of Product B under the traditional costing system is closest to: choose the correct answer
$54.13
$7.49
$4.32
$2.63
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
$28.97
$13.17
$83.66
$24.15

Solution Preview

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

Solution Summary

The solution explains how to calculate overhead rates

$2.19