Chapter 5 Hand-in assignment Due date: See schedule of due dates on Moodle Assignments must be completed in Word or Excel only. Other formats, including handwritten assignments, will not be accepted. . Please ensure that your submissions are not LOCKED and are submitted through Moodle Solutions will be posted on Moodle after the due date. Xnet develops software for internet applications. The market is very competitive and Xnets's competitors continue to introduce new products at low prices. Xnet offers a wide variety of software - from simple programs that enable new users to create personal web pages to complex commercial search engines. Like most software companies, XNet's raw material costs are insignificant Xnet has just hire Alex Acer, a recent graduate in accounting. Alex asks the software development Manager, Emily Easton, to join her in a pilot activity-based costing study. Acer and Easton identify the following activities, related annual costs and cost allocation bases: Activity Estimated cost Allocation base Estimated quantity of allocation base Applications development S1.600.000 New applications 4 new applications Content production 2,400,000 Lines of code 12 million lines Testing 288,000 Testing hours 1,800 testing hours Total indirect costs $4,288,000 The following information is available for 2 of the applications: X page - software for developing personal webpages - Requires 500,000 lines of code - Requires 100 hours of testing - Estimated units to be sold = 30,000 units X-Secure - commercial security and firewall software - Requires 7,500,000 lines of code - Requires 600 hours of testing - Estimated units to be sold = 10 units Required: 1. Compute the cost allocation rate for each activity 2. Use the activity-based cost allocation rates to compute the indirect cost of each unit of X Page and X-Secure. (Hint. Compute the total activity costs allocated to each product line and then compute the cost per unit) 3. Xnet's original single allocation based cost system allocated indirect costs to product at $100 per programmer hour. X-Page requires 10,000 programmer hours while X- Secure requires 15,000 programmer hours. Compute the indirect costs allocated to X-Page and X-Secure under the original system. Then, compute the indirect cost per unit for each product. 4. Compare the activity-based cost per unit to the cost for the simpler original system. How have the unit costs changed? Explain why the costs changed as they did. 5. What are the clues that Xnet's ABC system is likely to pass the cost-benefit test