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

Requires 3,840 hours of testing Requires 960 hours of testing

Requires 5,250 units of computing power Requires 2,250 units of computing power

Requires 20 developer hours to implement Requires 80 developer hours to implement

Cost Items Cost of Each Activity

Testing: $30,000

Computing power: $45,000

Developer hourly cost: $11 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 SPercentage of developer hours 20%

Testing cost$_____

Computing cost$ _____

Developer cost$______

Total cost$______

Product T Percentage of developer hours 80%

Testing cost$______

Computing cost$______

Developer cost$_______

Total cost $_______

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.

Product S Product T

Testing cost$____ Testing cost$____

Computing cost$_____ Computing cost$___

Developer cost$_____ Developer cost$_____

Total cost$_____ Total cost$_____