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	$	61,600		Number of units produced
Programming cost		88,920		Number of programming hours
Software inspections		7,260		Number of inspections
Product testing		6,500		Number of tests
Total overhead cost	$	164,280

Expected activity for each product follows:

	Number of Units			Number of Programming Hours			Number of Inspections			Number of Tests
Decoder P		20,000			2,100			182			1,100
Decoder Q		36,000			1,500			148			1,500
Total		56,000			3,600			330			2,600

Required

1. Compute the overhead rate for each activity pool.

2. Determine the overhead cost allocated to each product.

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

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

	Total Allocated Cost Decoder P Decoder Q

Answer 1

Answer

• Requirement 1

Activity Pools	Cost Pool Total	Cost Driver	Total Cost driver	Allocation Rate = ANSWER
Repair and maintenance on assembly machine	$61,600	Number of units produced	56000	$                                 1.10
Programming cost	$88,920	Number of programming hours	3600	$                               24.70
Software inspections	$7,260	Number of inspections	330	$                               22.00
Product testing	$6,500	Number of tests	2600	$                                 2.50
Total overhead cost	$164,280

• Requirement 2

	Allocated Cost
Decoder P	$80,624
Decoder Q	$83,656
Total	$164,280

--Working

		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	$                         1.10	20000	$                        22,000.00	36000	$      39,600.00
Programming cost	$                       24.70	2100	$                        51,870.00	1500	$      37,050.00
Software inspections	$                       22.00	182	$                          4,004.00	148	$        3,256.00
Product testing	$                         2.50	1100	$                          2,750.00	1500	$        3,750.00
		Total Allocated Cost	$                        80,624.00	Total Allocated Cost	$      83,656.00