Gibson Networking develops software for internet applications. The market is very competitive, and Gibson Networking's competitors continue to introduce new products at low prices. Gibson Networking offers a wide variety of softwarefrom simple programs that enable new users to create personal webpages to complex commercial search engines. Like most software companies, Gibson Networking's raw material costs are insignificant. Gibson Networking has just hired Nicole Merrell, a recent university graduate in accounting. Merrell asks Software Department Manager Jeff Gire to join her in a pilot activity based costing study. Merrell and Gire identify the following activities, related costs, and cost-allocation bases: (Click the icon to view the information.) Requirements Requirement 1. Compute the cost allocation rate for each activity. Determine the formula, then compute the cost allocation rate for each activity. (Round your answers to the nearest cent.) Activity overhead rate Content prod. II / line Testing 1 hour Requirement 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.) (Round the cost per unit to the nearest cent.) X-Page Applications development Content production Testing Total costs Number of units Per unit cost Requirement 3. Jacobson Company's original single-allocation-base costing system allocated indirect costs products at $121 per programmer hour. X-Page requires 14,000 programmer hours, while X-Secure requires 21,000 programmer hours. Compute the total indirect costs allocated to X-Page and X-Secure under the original system. Then, compute the indirect cost per unit for each product. First, compute the total indirect costs allocated to X-Page and X-Secure under the original single-allocation-base system. Select the formula, then enter the amounts and calculate the indirect cost allocated. Indirect cost Product allocated X-Page Il X-Secure = Requirement 4. Compare the activity-based costs per unit to the costs from the simpler original system. How have the unit costs changed? Explain why the costs changed as they did. The original system X-Page and X-Secure. The original system allocated overhead to X-Secure than to X-Page. But X-Secure required times as many lines of code and times as much testing as X-Page. The ABC system this difference and allocates of the content production and testing costs to X-Secure. Requirement 5. What are the clues that Jacobson Company's ABC system is likely to pass the cost-benefit test? Jacobson Company's different software applications use Jacobson Company has costs. Jacobson Company produces Jacobson Company is in Jacobson Company has Estimated Estimated Indirect Allocation Quantity of Activity Costs Base Allocation Base Activity Applications development $ Content production 1,500,000 New applications 5 new applications 2,400,000 Lines of code 12 million lines 255,000 Testing hours 1,700 testing hours 4,155,000 Testing $ Total indirect costs Gibson Networking is planning to develop the following new applications: X-Pagesoftware for developing personal webpages X-Secure-commercial security and firewall software X-Page requires 520,000 lines of code and 150 hours of testing, while X-Secure requires 7.8 million lines of code and 900 hours of testing. Gibson Networking expects to produce and sell 60,000 units of X-Page and 11 units of X-Secure. 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. Gibson Networking's original single-allocation-based cost system allocated indirect costs to products at $97 per programmer hour. X-Page requires 12,000 programmer hours, while X-Secure requires 18,000 programmer hours. Compute the total 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 costs per unit to the costs from the simpler original system. How have the unit costs changed? Explain why the costs changed as they did. 5. What are the clues that Gibson Networking's ABC system is likely to pass the cost-benefit test
