Adams Corporation makes two products: Product A and Product B. Annual production

Question

Adams Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 900 units of Product B. The company has traditionally used direct labor hours as the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor hours per unit and Product B requires 0.5 direct labor hours per unit The total estimated overhead for next period is $67322. 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 nave three overhead activity cost pools - Activity 1, Activity 2, and General Factory-with estimated overhead costs and expected activity as follows:

Explanation / Answer

TOTAL LABOUR HOUR REQUIRED FOR PRODUCT A (500 * 0.4) = 200 HOURS

TOTAL LABOUR HOUR REQUIRED FOR PRODUCT B (900 * 0.5) = 450 HOURS

TOTAL DIRECT LABOUR HOUR (200 + 450) = 650 HOURS

TOTAL EASTIMETED OVERHEAD = $67522

PREDETERMINED OVERHEAD RATE ($67522 / 650 HOURS) = $103.88 ANSWER OPTION C

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