Question

Use the information in Exercise 5-6A to complete the following requirements.
In Exercise 5-6A, 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.


Expected activity for each product follows.


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 ....... 10,000
Decoder Q....... 20,000
Total .......... 30,000

Required
a. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.
b. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC. Round your figures to two decimal points.
c. Explain why the per-unit overhead cost is lower for the high-volume product when usingABC.


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  • CreatedFebruary 07, 2014
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