Question

Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity- based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows: Activity Pools Repair and maintenance on assembly machine Programming cost Software inspections Product testing Total overhead cost Cost Pool Total $104,000 168,000 12,000 16,000 $300,000 Cost Driver Number of units produced Number of programming hours Number of inspections Number of tests Expected activity for each product follows: Number of Units 16,000 36,000 52,000 Decoder P Decoder o Total Number of Programming Hours 2,000 1,500 3,500 Number of Inspections 190 60 Number of Tests 1,400 1,100 2,500 250 Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow: Decoder P Decoder o Total Direct Labor Hours 8,000 16,000 24,000 Required a. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base. b. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC. Answer is complete but not entirely correct.

Answer 1

Total Overhead cost	300000
Divide by Total direct labor hours	24000
Overhead rate	12.50
A
	Allocated cost
Decoder P	100000	=8000*12.50
Decoder Q	200000	=16000*12.50
Total	300000