Question

Franklin 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	$	69,600		Number of units produced
Programming cost		100,860		Number of programming hours
Software inspections		5,000		Number of inspections
Product testing		11,220		Number of tests
Total overhead cost	$	186,680

Expected activity for each product follows:

	Number of Units			Number of Programming Hours			Number of Inspections			Number of Tests
Decoder P		22,000			1,600			190			1,600
Decoder Q		36,000			2,500			60			1,700
Total		58,000			4,100			250			3,300

Required

1. Compute the overhead rate for each activity pool.

2. Determine the overhead cost allocated to each product.

Answer 1

a.	Overhead rate for each actiivity pool
Activity Pools	Cost Pool Totals	Cost driver	Quantity of cost driver	Activity rate
	a		b	a/b
Repair and maintenance on assembly machine	$                  69,600	Number of units produced	58,000	$         1.20
Programming cost	$                1,00,860	Number of programming hours	4,100	$       24.60
Software inspections	$                    5,000	Number of inspection	250	$       20.00
Product testing	$                  11,220	Number of test	3,300	$         3.40
	$                1,86,680
b.
Overhead cost allocated to each product
	Deecoder P	Deecoder Q
Repair and maintenance on assembly machine	$ 26,400	$ 43,200
	(22000*$ 1.20)	(36000*$ 1.20)
Programming cost	$ 39,360	$ 61,500
	(1600*$ 24.60)	(2500*$ 24.60)
Software inspections	$ 3,800	$ 1,200
	(190*$ 20.00)	(60*$ 20.00)
Product testing	$ 5,440	$ 5,780
	(1600*$ 3.40)	(1700*$ 3.40)
Total Overhead allocated	$ 75,000	$ 1,11,680