Question
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
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 | $ 97,500 | Number of units produced |
Programming cost | 130,500 | Number of programming hours |
Software inspections | 10,000 | Number of inspections |
Product testing | 14,000 | Number of tests |
Total overhead cost | $ 252,000 |
Expected activity for each product follows:
Number of Units | Number of Programming Hours | Number of Inspections | Number of Tests | |
---|---|---|---|---|
Decoder P | 19,500 | 1,500 | 152 | 1,120 |
Decoder Q | 45,500 | 1,000 | 48 | 880 |
Total | 65,000 | 2,500 | 200 | 2,000 |
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 | 6,300 |
Decoder Q | 14,700 |
Total | 21,000 |
Required
- Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.
- Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.
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