Apply manufacturing overhead to each of several jobs using both a single overhea

Question

Apply manufacturing overhead to each of several jobs using both a single overhead-rate approach and an activity-based-costing approach, and explain the advantages and disadvantages of the latter, as compared to the former.

Use the following information to answer the following TWO questions:

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. 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:

1)The predetermined overhead rate under the traditional single-rate costing system is closest to: (Points : 5)

$ 37.46.

$ 21.60.

$ 13.17.

$ 53.68.

2) In correspondence to SLOAT question number 3b.

The overhead cost per unit of Product B under the traditional costing system is closest to: (Points : 5)

$10.74

$7.49

$4.32

$2.63

3) The amount of Activity 1 cost per unit of Product B under the activity based costing system is closest to: (Points : 5)

$24.17

$26.36

$15.82

$29.00

Explanation / Answer

1)The predetermined overhead rate under the traditional single-rate costing system is closest to: (Points : 5)

Ovrehead rate = 102000/1900 = 53.68

$ 53.68.

2) In correspondence to SLOAT question number 3b.

The overhead cost per unit of Product B under the traditional costing system is closest to: (Points : 5)

=(53.68*100)/500 = $10.74

$10.74

  3) The amount of Activity 1 cost per unit of Product B under the activity based costing system is closest to: (Points : 5)

=(14500/1100*600)/500unit = 15.82

$15.82

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