Question

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 Cost Pool Total Cost Driver Repair and maintenance on assembly machine $ 104,000 Number of units produced Programming cost 103,740 Number of programming hours Software inspections 7,280 Number of inspections Product testing 10,000 Number of tests Total overhead cost $ 225,020 Expected activity for each product follows. Number of Units Number of Programming Hours Number of Inspections Number of Tests Decoder P 21,000 2,000 200 1,400 Decoder Q 31,000 2,200 80 1,100 Total 52,000 4,200 280 2,500 Assume that before shifting to activity-based costing, Terry Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow. Direct Labor Hours Decoder P 17,000 Decoder Q 28,000 Total 45,000 Required: a. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base. (Round intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.) b. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC. (Round intermediate calculations and final answers to 2 decimal places.)

Answer 1

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