Question

Tk #5 Saved Help Save & Exit Submit Check my work 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: Decoder P Decoder o Total Number of Units 16,000 36,000 52,000 Number of Programming Hours 2,000 1,500 3,500 Number of Inspections 190 60 250 Number of Tests 1,400 1,100 2,500 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: < Prev 2 of 6 !!! Next > Search, pricing, packaging, transportation, advertising, selling, and servicing: marketing impacts every one of these essential

Answer 1

• Requirement [a]

	Allocated Cost
Decoder P	$100,000	($300000/24000) x 8000 DLHs
Decoder Q	$200,000	($300000/24000) x 16000 DLHs
Total	$300,000

• Working

Activity Pools	Cost Pool Total	Cost Driver	Total Cost driver	Allocation Rate
Repair and maintenance on assembly machine	$104,000	Number of units produced	52000	$                                 2.00
Programming cost	$168,000	Number of programming hours	3500	$                               48.00
Software inspections	$12,000	Number of inspections	250	$                               48.00
Product testing	$16,000	Number of tests	2500	$                                 6.40
Total overhead cost	$300,000

		Decoder P		Decoder Q
Activity Pools	Allocation Rate	No. of cost driver	Overhead allocated	No. of cost driver	Overhead allocated
Repair and maintenance on assembly machine	$                         2.00	16000	$                        32,000.00	36000	$      72,000.00
Programming cost	$                       48.00	2000	$                        96,000.00	1500	$      72,000.00
Software inspections	$                       48.00	190	$                          9,120.00	60	$        2,880.00
Product testing	$                         6.40	1400	$                          8,960.00	1100	$        7,040.00
		Total Allocated Cost	$                      146,080.00	Total Allocated Cost	$   153,920.00

• Requirement [b]

Cost per unit
Method	Decoder P	Decoder Q
ABC	$                        9.13	$                    4.28
Labor hours	$                 6.25	$                    5.56