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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 Expected activity for each product follows: Cost Pool Total $ 97,500 Cost Driver Number of units produced Number of programming hours Number of inspections 130,500 10,000 14,000 Number of tests $ 252,000 Number of Number of Programming Number of Number of Units Hours Inspections Tests Decoder P Decoder Q Total 19,500 1,500 152 1,120 45,500 1,000 48 880 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: Decoder P Decoder Q Total Direct Labor Hours 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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