Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labor hours to allocate its overhead to products.Carts require 1.0 direct labor hours per unit,while Wheelbarrows require 0.5 direct labor hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:
-The predetermined overhead allocation rate using the traditional costing system would be closest to:

Question

Vittoria Corporation manufactures two products-Carts and Wheelbarrows.The annual production and sales of Carts is 2,000 units,while 1,800 units of Wheelbarrows are produced and sold.The company has traditionally used direct labor hours to allocate its overhead to products.Carts require 1.0 direct labor hours per unit,while Wheelbarrows require 0.5 direct labor hours per unit.The total estimated overhead for the period is $117,500.The company is looking at the possibility of changing to an activity-based costing system for its products.If the company used an activity-based costing system,it would have the following three activity cost pools:  
-The predetermined overhead allocation rate using the traditional costing system would be closest to:

Quizplus · Accepted Answer

The predetermined overhead allocation rate using the traditional costing system would be closest to $40.52 per direct labor hour. This is because the traditional costing system allocates overhead costs based on a single cost driver, which is usually direct labor hours. In this case, the predetermined overhead allocation rate is calculated by dividing the total estimated overhead costs by the total estimated direct labor hours.

Vittoria Corporation Manufactures Two Products-Carts and Wheelbarrows