Acklin Company has two products: A and B. Annual production and sales are 600 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 0.5 direct labor hours per unit and Product B requires 0.3 direct labor hours per unit. The total estimated overhead for next period is $63,322. 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:
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Estimated |
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Overhead |
Expected Activity |
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Activity Cost Pool |
Cost |
Product A |
Product B |
Total |
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Activity 1 |
$18,900 |
700 |
200 |
900 |
|
Activity 2 |
15,631 |
1,000 |
100 |
1,100 |
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General factory |
28,791 |
300 |
270 |
570 |
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Total |
$63,322 |
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The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity based costing system is closest to:
A) $27.00
B) $94.50
C) $21.00
D) $70.36