Addy Company has two products: A and B. The annual production and sales of Product A is 1,700 units and of Product B is 1,100 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 $98,785.
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:
Activity Cost pool
Estimated Overhead Costs
Expected Product A
Expected Product B
Total
Activity 1
$30,528
1,000
600
1,600
Activity 2
$17,385
1,700
200
1,900
General Factory
$50,872
510
660
1,170
Total
$98,785
Note: The general factory activity cost pool's cost s are allocated on the basis of direct labor-hours
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
$9.15
$51.99
$86.93
$10.23