Terry Industries produces two electronic decoders, P and Q. Decoder P is more so

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 Cost Driver Activity Pools Repair and maintenance on assembly machine Programming cost Software inspections Product testing Cost Pool Total 52,000 Number of units produced 84, 000 6,000 8,000 Number of programming hours Number of inspections Number of tests Total overhead cost $150,000 Expected activity for each product follows Number of Number Number Programming of Units 16,000 36,000 Hoursof Inspections 2,000 1,500 Number of Tests 1,400 1,100 Decoder P Decoder Q 190 60 Total 52,000 3,500 250 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 Decoder P Decoder Q Direct Labor Hours 10,000 20,000 Total 30,000

Explanation / Answer

b)

a) Allocated costs under labor hours: Decoder P $       50,000.00 150000*10000/30000 Decoder Q $     100,000.00 150000*20000/30000

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