Question

Rundle Industries produces two electronic decoders, P and T. Decoder P is more sophisticated and requires more programming and testing than does Decoder T. 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	$64,800	Number of units produced
Programming cost	89,540	Number of programming hours
Software inspections	8,250	Number of inspections
Product Testing	9,610	Number of tests
Total Overhead Cost	$172,200

Expected activity for each product follows:

	Number of Units	Number of Programming Hours	Number of Inspections	Number of tests
Decoder P	25,000	1,800	197	1,400
Decoder T	29,000	1,900	133	1,700
Total	54,000	3,700	330	3,100

Required:

a) Compute the overhead rate for each activity pool. (Repair and maintenance, Programming Cost, Software Inspections, Product Testing)

b) Determine the overhead cost allocated to each product. (Decoder P, Decoder T)

(Round answers to 2 decimal places)

Answer 1

Solution

Rundle Industries

1. Computation of the overhead rate for each activity pool:

Activity cost pool	Cost pool total	estimated cost driver	Usage	activity rate
Repairs and maintenance	$64,800	Number of units produced	$54,000	$1.20 per unit
programming cost	$89,540	Number of programming hours	3,700	$24.20 per hour
Software inspections	$8,250	Number of inspections	330	$25 per inspection
product testing	$9,610	Number of tests	3,100	$3.10 per test
total overhead cost	$172,200

1. Determination of overhead cost allocated to each product:

Decoder P
Activity cost pool	Usage	Activity Rate	Activity Cost
Repairs and Maintenance	25,000 units	$1.20 per unit	$30,000
Programming	1,800 hours	$24.20 per hour	$43,560
Software inspections	197 inspections	$25 per inspection	$4,925
Product Testing	1,400 tests	$3.10 per test	$4,340
Total cost			$82,825

Decoder T
Activity cost pool	Usage	Activity Rate	Activity Cost
Repairs and Maintenance	29,000 units	$1.20 per unit	$34,800
Programming	1,900 hours	$24.20 per hour	$45,980
Software inspections	133inspections	$25 per inspection	$3,325
Product Testing	1,700 tests	$3.10 per test	$5,270
Total cost			$89,375