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 Total Software inspections Product testing Total overhead cost Expected activity for each product follows. Decoder P Decoder Q 16,000 36,000 52,000 Required a. Compute the overhead rate for each activity pool. b. Determine the overhead cost allocated to each product. 2,000 1,500 3,500 Total Cost Pool Total Decoder P $104,000 Number of Units Number of Programming Hours Number of Inspections Number of Tests LO 5-1, 5-3 Exercise 5-7A Comparing an ABC system with a traditional costing system Decoder Q 168,000 12,000 16,000 $300,000 Direct Labor Hours 8,000 Cost Driver 16,000 Number of units produced 24,000 Number of programming hours Number of inspections Number of tests Use the information in Exercise 5-6A to complete the following requirements. 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. 190 - 60 250 1,400 1,100 2,500 Page 23 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. Round your figures to two decimal points. Explain why the per-unit overhead cost is lower for the high-volume product 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 Total Software inspections Product testing Total overhead cost Expected activity for each product follows. Decoder P Decoder Q 16,000 36,000 52,000 Required a. Compute the overhead rate for each activity pool. b. Determine the overhead cost allocated to each product. 2,000 1,500 3,500 Total Cost Pool Total Decoder P $104,000 Number of Units Number of Programming Hours Number of Inspections Number of Tests LO 5-1, 5-3 Exercise 5-7A Comparing an ABC system with a traditional costing system Decoder Q 168,000 12,000 16,000 $300,000 Direct Labor Hours 8,000 Cost Driver 16,000 Number of units produced 24,000 Number of programming hours Number of inspections Number of tests Use the information in Exercise 5-6A to complete the following requirements. 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. 190 - 60 250 1,400 1,100 2,500 Page 23 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. Round your figures to two decimal points. Explain why the per-unit overhead cost is lower for the high-volume product when using ABC.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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
Total
Product testing
Total overhead cost
Expected activity for each product follows.
Decoder P
Decoder Q
16,000
36,000
52,000
Required
a. Compute the overhead rate for each activity pool.
b. Determine the overhead cost allocated to each product.
2,000
1,500
3,500
Total
Cost Pool Total
Number of Units Number of Programming Hours Number of Inspections Number of Tests
Decoder P
$104,000
Decoder Q
168,000
LO 5-1, 5-3
Exercise 5-7A Comparing an ABC system with a traditional costing system
12,000
16,000
$300,000
Direct Labor Hours
8,000
Cost Driver
16,000
Number of units produced
24,000
Number of programming hours
Number of inspections
Number of tests
Use the information in Exercise 5-6A to complete the following requirements. Assume that before shifting to activity-based costing.
llow.
Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoder
190 -
60
250
1,400
1,100
2,500
Page 233
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. Round your figures
to two decimal points.
c. Explain why the per-unit overhead cost is lower for the high-volume product when using ABC.
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