Terry Industries produces two electronic decoders, P and Q. Decoder P is moresophisticated and requires more programming and testing than does Decoder Q.Because of these product differences, the company wants to use activity-based costingto allocate overhead costs. It has identified four activity pools. Relevant informationfollows.Activity PoolsRepair and maintenance on assemblymachineCost Pool TotalCost DriverNumber of units produced121,800Number of programmingProgramming cost94,240hoursNumber of inspectionsNumber of testsSoftware inspectionsProduct testing7,56011,780$235,380Total overhead costExpected activity for each product follows.Number ofNumberNumber Programmingof UnitsofNumberInspections of TestsHoursDecoder21,0002,3001821,300PDecoder1,50037,000981,800QTotal58,0003,8002803,100Required:a. Compute the overhead rate for each activity pool. (Round your answers to 2 decimalplaces.)Allocation RateActivity PoolsDecoder PDecoder QRepair and maintenance on assemblymachineProgramming costSoftware inspectionsProduct testingb. Determine the overhead cost allocated to each product. (Round intermed iatecalculations to 2 decimal places.)Total Allocated CostDecoder PDecoder Q

Question
Asked Nov 5, 2019
Terry 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
Cost Pool Total
Cost Driver
Number of units produced
121,800
Number of programming
Programming cost
94,240
hours
Number of inspections
Number of tests
Software inspections
Product testing
7,560
11,780
$235,380
Total overhead cost
Expected activity for each product follows.
Number of
Number
Number Programming
of Units
of
Number
Inspections of Tests
Hours
Decoder
21,000
2,300
182
1,300
P
Decoder
1,500
37,000
98
1,800
Q
Total
58,000
3,800
280
3,100
Required:
a. Compute the overhead rate for each activity pool. (Round your answers to 2 decimal
places.)
Allocation Rate
Activity Pools
Decoder P
Decoder Q
Repair and maintenance on assembly
machine
Programming cost
Software inspections
Product testing
b. Determine the overhead cost allocated to each product. (Round intermed iate
calculations to 2 decimal places.)
Total Allocated Cost
Decoder P
Decoder Q
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Terry 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 Cost Pool Total Cost Driver Number of units produced 121,800 Number of programming Programming cost 94,240 hours Number of inspections Number of tests Software inspections Product testing 7,560 11,780 $235,380 Total overhead cost Expected activity for each product follows. Number of Number Number Programming of Units of Number Inspections of Tests Hours Decoder 21,000 2,300 182 1,300 P Decoder 1,500 37,000 98 1,800 Q Total 58,000 3,800 280 3,100 Required: a. Compute the overhead rate for each activity pool. (Round your answers to 2 decimal places.) Allocation Rate Activity Pools Decoder P Decoder Q Repair and maintenance on assembly machine Programming cost Software inspections Product testing b. Determine the overhead cost allocated to each product. (Round intermed iate calculations to 2 decimal places.) Total Allocated Cost Decoder P Decoder Q

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check_circleExpert Solution
Step 1

ABC (Activity based costing) framework was created to manage the drawbacks of customary costing framework. It helps in finding the absolute expense of activities that are important to make an item.

Step 2

a. To calculate the overhead rate for each activity pool:

Cost pool Cost diver
total (A)
$121,800 Number of units
Activity pool
Expected
activity total (B) (A B)
58,000
Overhead rate
Repairs and
maintenance on activity
machine
Programming cost
$2.10
produced
$94,240
$24.80
No. of
3,800
programming
hours
No. of
inspections
Number of tests
$27
280
Software inspection
$7,560
$11,780
Product testing
3,100
$3.80
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Cost pool Cost diver total (A) $121,800 Number of units Activity pool Expected activity total (B) (A B) 58,000 Overhead rate Repairs and maintenance on activity machine Programming cost $2.10 produced $94,240 $24.80 No. of 3,800 programming hours No. of inspections Number of tests $27 280 Software inspection $7,560 $11,780 Product testing 3,100 $3.80

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Step 3

b. To calculate the overhead cost ...

Activity pool Pre-
Overhead
Cost diver
Overhead
Cost diver
determined activity of
overheads Decoder P
allocated
activity of
Decoder Q
allocated
rate
$2.10
Repairs and
21,000 units $44,100
37,000 units $77,700
maintenance
on activity
machine
Programming S24.80
2,300
programming
hours
$57,040
S37,200
1,500
programming
hours
cost
$27
$1,274
$2,646
Software
182
98
inspection
inspections
1,300 tests
inspections
1,800 tests
$3.80
$4,940
$6,840
Product
testing
s107,354
S124,386
Total
help_outline

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Activity pool Pre- Overhead Cost diver Overhead Cost diver determined activity of overheads Decoder P allocated activity of Decoder Q allocated rate $2.10 Repairs and 21,000 units $44,100 37,000 units $77,700 maintenance on activity machine Programming S24.80 2,300 programming hours $57,040 S37,200 1,500 programming hours cost $27 $1,274 $2,646 Software 182 98 inspection inspections 1,300 tests inspections 1,800 tests $3.80 $4,940 $6,840 Product testing s107,354 S124,386 Total

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