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
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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
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.
a. To calculate the overhead rate for each activity pool:
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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
b. To calculate the overhead cost ...
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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
Business
Accounting
Activity Based Costing
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