Question

Benson 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	Cost Pool Total			Cost Driver
Repair and maintenance on assembly machine	$	87,000		Number of units produced
Programming cost		96,000		Number of programming hours
Software inspections		5,880		Number of inspections
Product testing		9,570		Number of tests
Total overhead cost	$	198,450

Expected activity for each product follows:

	Number of Units			Number of Programming Hours			Number of Inspections			Number of Tests
Decoder P		21,000			2,500			191			1,600
Decoder Q		37,000			1,500			89			1,700
Total		58,000			4,000			280			3,300

Required

1. Compute the overhead rate for each activity pool.

2. Determine the overhead cost allocated to each product.

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

Compute the overhead rate for each activity pool. (Round your answers to 2 decimal places.)

	Activity Pools Allocation Rate Repair and maintenance on assembly machine Programming cost Software inspections Product testing

	Total Allocated Cost Decoder P Decoder Q

Answer 1

	Answer = 1
	Step 1: Calculation of the Activity Cost Driver Rate
	Activity Cost Driver Rate = Activity Cost / Cost Driver
				Activity Cost / Cost Driver =
	Activity	Cost Driver		Activity Cost	"/"	Cost Driver	" = " To	Cost Driver Rate
	Repair and maintenance on assemble machine	Number of units Produced		$                         87,000	"/"	58,000	" = " To	$                      1.50
	Programming cost	Number of Programming hours		$                         96,000	"/"	4,000	" = " To	$                    24.00
	Software inspections	Number of Inspections		$                           5,880	"/"	280	" = " To	$                    21.00
	Product Testing	Number of Tests		$                           9,570	"/"	3,300	" = " To	$                      2.90
		Total		$                     1,98,450
	Answer = 2
	DISTRIBUTION OF OVERHEAD COST AS PER ABC COST DRIVER RATE
	Activity	Product		Cost Driver Used	"X " By	Cost Driver Rate	" = " To	Activity Cost
	Repair and maintenance on assemble machine			Number of units Produced
		Decoder P		21,000	"X " By	$                        1.50	" = " To	$                 31,500
		Decoder Q		37,000	"X " By	$                        1.50	" = " To	$                 55,500
	Programming cost			Number of Programming hours
		Decoder P		2,500	"X " By	$                     24.00	" = " To	$                 60,000
		Decoder Q		1,500	"X " By	$                     24.00	" = " To	$                 36,000
	Software inspections			Number of Inspections
		Decoder P		191	"X " By	$                     21.00	" = " To	$                    4,011
		Decoder Q		89	"X " By	$                     21.00	" = " To	$                    1,869
	Product Testing			Number of Tests
		Decoder P		1,600	"X " By	$                        2.90	" = " To	$                    4,640
		Decoder Q		1,700	"X " By	$                        2.90	" = " To	$                    4,930
	Total
	Product	Decoder P		Decoder Q
	Overhead Expenses
	Repair and maintenance on assemble machine	$                          31,500.00		$                   55,500.00
	Programming cost	$                          60,000.00		$                   36,000.00
	Software inspections	$                            4,011.00		$                     1,869.00
	Product Testing	$                            4,640.00		$                     4,930.00
	Total Allocated Cost	$                      1,00,151.00		$                   98,299.00