Comparing Two Products under Traditional and Activity-Based Costing

Compare two projects under development by the same company. The following are a few aspects of each product's development process relevant to costs.

Product S

Product T

Requires 3,200 hours of testing

Requires 800 hours of testing

Requires 4,550 units of computing power

Requires 1,950 units of computing power

Requires 30 developer hours to implement

Requires 70 developer hours to implement

Cost Items

Cost of Each Activity

Testing:

$31,200

Computing power:

$46,800

Developer hourly cost:

$14 per hour

Traditional Costing

Traditional costing would take the proportion of a direct cost, such as direct labor hours, and use it as the basis for allocating overhead costs, such as computing power and testing. In the following table, use developer hours as the basis for assigning overhead costs (computing and developer costs) to each project. If required, round your answers to the nearest dollar.

Product S

Product T

Percentage of developer hours

30%

Percentage of developer hours

70%

Testing cost

$

Testing cost

$

Computing cost

$

Computing cost

$

Developer cost

$

Developer cost

$

Total cost

$

Total cost

$

Comparing Two Products under Traditional and Activity-Based Costing Compare two projects under development by the same company. The following are a few aspects of each product's development process relevant to costs. Product S Product T Requires 3,200 hours of testing Requires 800 hours of testing Requires 4,550 units of computing power Requires 1,950 units of computing power Requires 30 developer hours to implement Requires 70 developer hours to implement Cost Items Testing: Computing power: Developer hourly cost: Cost of Each Activity $31,200 $46,800 $14 per hour Traditional Costing Traditional costing would take the proportion of a direct cost, such as direct labor hours, and use it as the basis for allocating overhead costs, such as computing power and testing. In the following table, use developer hours as the basis for assigning overhead costs (computing and developer costs) to each project. If required, round your answers to the nearest dollar. Product S Percentage of developer hours Testing cost Computing cost Developer cost Total cost Product T 30% Percentage of developer hours Testing cost $ Computing cost $ Developer cost $ Total cost $ Percentage of developer hours + Percentage of developer hours for Product S (30%) Allocation basis for Product S: The amount of labor hours associated directly with Product S, as a percentage of all developer hours worked (regardless of product). The amounts for overhead to be allocated are multiplied by this value to determine the overhead to be assigned to Product S under the traditional costing method. 30 (30+70) + Percentage of developer hours for Product T (70%) Allocation basis for Product T: The amount of labor hours associated directly with Product T, as a percentage of all developer hours worked (regardless of product). The amounts for overhead to be allocated are multiplied by this value to determine the overhead to be assigned to Product T under the traditional costing method. 70 (30+70) Review the resources each product (S and T) requires for production and compare that to the costs calculated above under traditional costing. Does traditional costing serve as an accurate gauge of costs? No Feedback 70% $ $ $ $ Activity-Based Costing Using the data above for products S and T, calculate the costs using activity-based costing. Allocate the costs of testing, computing, and development based on the rates of activity consumed by each product's development process. If required in your computations, round per unit costs to the nearest cent. Round your final answers to the nearest dollar. Cost Activity Base Testing Hours of testing Computing cost Units of computing power Developer cost Development hours Product S Testing cost Computing cost Developer cost Total cost $ $ $ $ Product T Testing cost Computing cost Developer cost Total cost $ $ $ $