Question
1. Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q.
1.
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 | Cost Pool Total | Cost Driver | ||
| Repair and maintenance on assembly machine | $ | 104,000 | Number of units produced | |
| Programming cost | 168,000 | Number of programming hours | ||
| Software inspections | 12,000 | Number of inspections | ||
| Product testing | 16,000 | Number of tests | ||
| Total overhead cost | $ | 300,000 | ||
Expected activity for each product follows:
| Number of Units | Number of Programming Hours | Number of Inspections | Number of Tests | |||||||||
| Decoder P | 16,000 | 2,000 | 190 | 1,400 | ||||||||
| Decoder Q | 36,000 | 1,500 | 60 | 1,100 | ||||||||
| Total | 52,000 | 3,500 | 250 | 2,500 | ||||||||
Required
-
Compute the overhead rate for each activity pool.
-
Determine the overhead cost allocated to each product.
2.
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 | Cost Pool Total | Cost Driver | ||
| Repair and maintenance on assembly machine | $ | 104,000 | Number of units produced | |
| Programming cost | 168,000 | Number of programming hours | ||
| Software inspections | 12,000 | Number of inspections | ||
| Product testing | 16,000 | Number of tests | ||
| Total overhead cost | $ | 300,000 | ||
Expected activity for each product follows:
| Number of Units | Number of Programming Hours | Number of Inspections | Number of Tests | |||||||||
| Decoder P | 16,000 | 2,000 | 190 | 1,400 | ||||||||
| Decoder Q | 36,000 | 1,500 | 60 | 1,100 | ||||||||
| Total | 52,000 | 3,500 | 250 | 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:
| Direct Labor Hours | |||
| Decoder P | 8,000 | ||
| Decoder Q | 16,000 | ||
| Total | 24,000 | ||
Required
-
Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.
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Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.
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