Question

Terry 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 follow.

Activity Pools	Cost Pool Total			Cost Driver
Repair and maintenance on assembly machine	$	71,500		Number of units produced
Programming cost		88,920		Number of programming hours
Software inspections		6,900		Number of inspections
Product testing		6,750		Number of tests
Total overhead cost	$	174,070

Expected activity for each product follows.

	Number of Units		Number of Programming Hours		Number of Inspections		Number of Tests
Decoder P	16,000		2,300		197		1,300
Decoder Q	39,000		1,500		103		1,400
Total	55,000		3,800		300		2,700

Required:

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

     

b.	Determine the overhead cost allocated to each product. (Round intermediate calculations to 2 decimal places.)

     

Answer 1

Requirement A Compute the Activity Rate for each of activity cost pools: Activity Cost Pool Estimated Overhead cost (A) Expected Activity (B) Activity Rate (A/B) Repair and Maintenance on assembly machine $ 71,500.00 55000 $ Programming cost 88,920.00 3800 $ Software inspections 6,900.00 300 $ product testing 6,750.00 2700 $ 1.30 Per Unit 23.40 Per Programming hour 23.00 Per Inspection 2.50 Per Test 174,070.00 Requirement B Overhead Cost Allocated to Each Product : Decoder P Expected Activity (A) Repair and Maintenance on assembly machine Programming cost Software inspections product testing Activity Rate (B) 16000 $ 1.30 2300 $ 23.40 197 $ 23.00 1300 $ 2.50 Overhead cost (AXB) $ 20,800.00 $ 53,820.00 $ 4,531.00 $ 3,250.00 82,401.00 Decoder Q Expected Activity (A) Repair and Maintenance on assembly machine Programming cost Software inspections product testing Activity Rate (B) 39000 $ 1.30 1500 $ 23.40 103 $ 23.00 1400 $ 2.50 Overhead cost (AXB) $ 50,700.00 $ 35,100.00 $ 2,369.00 $ 3,500.00 91,669.00