Question

Rooney 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 $ 90, 100 102,500 6,960 11,780 $ 211,340 Cost Driver Number of units produced Number of programming hours Number of inspections Number of tests Expected activity for each product follows: Number of Inspections Number of Units 24,000 29,000 53,000 Decoder P Decoder o Total Number of Programming Hours 1,800 2,300 4,100 200 Number of Tests 1,600 1,500 3,100 Required a. Compute the overhead rate for each activity pool. b. Determine the overhead cost allocated to each product.

Answer 1

1) Overhead rate

	Activity rate
repairs and maintenance on assembly machine (90100/53000)	1.70 per unit
Programming cost (102500/4100)	25 per hour
Software inspections (6960/290)	24 per inspection
Product testing (11780/3100)	3.80 per test

2) Overhead allocation

	Decoder P	Decoder Q
repairs and maintenance on assembly machine	40800	49300
Programming cost	45000	57500
Software inspections	4800	2160
Product testing	6080	5700
Total	96680	114660