Adelberg Company has two products: A and B. The annual production and sales of Product A is 2,600 units and of Product B is 2,000 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 0.6 direct labor-hours per unit. The total estimated overhead for next period is $108,775.
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 Order Size--with estimated overhead costs and expected activity as follows:
| Activity Cost Pools | Estimated Overhead Costs | Expected Activity |
|---|
| Product A | Product B | Total |
|---|
| Activity 1 | $ 33,611 | 1,900 | 1,500 | 3,400 |
|---|
| Activity 2 | 19,144 | 2,600 | 1,100 | 3,700 |
|---|
| Order Size | 56,020 | 780 | 1,200 | 1,980 |
|---|
| Total | $ 108,775 | | | |
|---|
(Note: The Order Size activity cost pool's costs are allocated on the basis of direct labor-hours.)
The predetermined overhead rate under the traditional costing system is closest to:
▸ $5.17 per DLH
▸ $28.29 per DLH
▸ $54.94 per DLH
▸ $9.89 per DLH
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