Adams Company has two products: A and B. The annual production and sales of Product A is 2,550 units and of Product B is 1,950 units. The company has traditionally used direct labor-hours as the basis for applying all manufacturing overhead to products. Product A requires 0.5 direct labor-hours per unit and Product B requires 0.8 direct labor-hours per unit. The total estimated overhead for next period is $108,200.
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: Activities Estimated Overhead
Expected Activity Product A Product B Total Activity 1 $33,434 1,850 1,450 3,300 Activity 2 19,043 2,550 1,050 3,600 General Factory
55,723 1,275 1,560 2,835 Total
(Note: The General Factory 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: