Maloney Internet develops software for internet applications. The market is very competitive, and Maloney Internet's competitors continue to introduce new products at low prices. Maloney Internet 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, Maloney Internet's raw material costs are insignificant. Maloney Internet 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: 5 (Click the icon to view the information.) Requirements Data table Estimated Estimated Indirect Allocation Quantity of Activity Activity Costs Base Allocation Base Applications development.... $ 1,600,000 New applications 4 new applications Content production 3,300,000 Lines of code 11 million lines Testing 288,000 Testing hours 1,800 testing hours $ Total indirect costs 5,188,000 Maloney Internet 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 180 hours of testing, while X-Secure requires 7.8 million lines of code and 1,080 hours of testing. Maloney Internet expects to produce and sell 60,000 units of X-Page and 11 units of X-Secure. Print Done - Requirements 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. Maloney Internet's original single-allocation-based cost system allocated indirect costs to products at $121 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 Maloney Internet's ABC system is likely to pass the cost-benefit test? 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.) 1 = / Appl. Dev. Content prod. Testing Estimated indirect activity cost 1,600,000 3,300,000 288,000 Cost allocation base (estimated) 4 11,000,000 1,800 Activity overhead rate = $ 400,000 / application = $ 0.30 / line = $ 160 /hour A 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 nt.) X-Page 400000 0.3 160 Applications development Content production Testing Total costs Number of units Per unit cost
