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Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q.
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 Repair and maintenance on assembly machine Programming cost Software inspections Product testing Total overhead cost Cost Driver Cost Pool Total $112,000 158,500 Number of units produced Number of programming hours. 15,000 Number of inspections 19,000 Number of tests $304,500 Expected activity for each product follows: Number of Number of Programming Number of Number of Units Hours Inspections Tests: Decoder P Decoder Q Total 16,800 2,700 3041 1,120 39,200 2,300 96 880 56,000 5,000 400 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. Decoder Q Total 6,300 14,700 21,000 Required a. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base. b. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.
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