Markham Company makes two products: Basic Product and Deluxe
Product. Annual production and sales are 2,400 units of Basic
Product and 2,000 units of Deluxe Product. The company has
traditionally used direct labor-hours as the basis for applying all
manufacturing overhead to products. Basic Product requires 0.3
direct labor hours per unit and Deluxe Product requires 0.6 direct
labor hours per unit. The total estimated overhead for next period
is $99,385. 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: Estimated Expected Activity Activity
Cost Pool Overhead Costs Basic Product Deluxe Product Total
Activity 1 $ 30,672 1,600 800 2,400 Activity 2 17,565 2,200 400
2,600 General Factory 51,148 720 1,200 1,920 Total $ 99,385 (Note:
The General Factory activity cost pool’s costs are allocated on the
basis of direct labor hours.) The overhead cost per unit of Deluxe
Product under the activity-based costing system is closest to:
$38.23. $15.98. $21.10. $22.45.