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: Decoder P Decoder Q Total Number of Units 16,800 39,200 56,000 Decoder P Decoder Q Total Direct Labor Hours Number of Programming Hours 2,100 1,700 3,800 6,600 15,400 22,000 Cost Pool Total $ 128,800 167,200 26,000 30,000 $ 352,000 Cost Driver Number of units produced Number of programming hours Number of inspections Number of tests Number of Number of Inspections 494 156 650 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: Tests 1,400 1,100 2,500 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.
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: Decoder P Decoder Q Total Number of Units 16,800 39,200 56,000 Decoder P Decoder Q Total Direct Labor Hours Number of Programming Hours 2,100 1,700 3,800 6,600 15,400 22,000 Cost Pool Total $ 128,800 167,200 26,000 30,000 $ 352,000 Cost Driver Number of units produced Number of programming hours Number of inspections Number of tests Number of Number of Inspections 494 156 650 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: Tests 1,400 1,100 2,500 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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:
Decoder P
Decoder Q
Total
Number of
Units
16,800
39,200
56,000
Decoder P
Decoder Q
Total
Direct Labor
Hours
Number of
Programming
Hours
2,100
1,700
3,800
6,600
15,400
22,000
Cost Pool
Total
$ 128,800
167,200
26,000
30,000
$352,000
Number of
Inspections
494
156
650
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:
Cost Driver
Number of units produced
Number of programming hours
Number of inspections
Number of tests
Number of
Tests
1,400
1,100
2,500
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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