90.2K

Verified Solution

Link Copied!

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	Cost Pool Total			Cost Driver
Repair and maintenance on assembly machine	$	104,000		Number of units produced
Programming cost		168,000		Number of programming hours
Software inspections		12,000		Number of inspections
Product testing		16,000		Number of tests
Total overhead cost	$	300,000

Expected activity for each product follows:

	Number of Units			Number of Programming Hours			Number of Inspections			Number of Tests
Decoder P		16,000			2,000			190			1,400
Decoder Q		36,000			1,500			60			1,100
Total		52,000			3,500			250			2,500

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:

	Direct Labor Hours
Decoder P		8,000
Decoder Q		16,000
Total		24,000

Required

Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

Answer & Explanation Solved by verified expert

See Answer