Sawyer develops sofiware for intemet applications. The market is very competitiv
ID: 2547827 • Letter: S
Question
Sawyer develops sofiware for intemet applications. The market is very competitive, and Sawyers competitors continue to introduce new products at low variety of software-rom simple programs that enable new users to create personal webpages to complex commercial search engines Like most software companies, Sawyers raw material costs are insignificant Sawyer has t hre Nicole Merrel, a recent un esty graduate in a courtng Merre' asks Merrell and Gire idently the following activities, related costs, and cost -allocation bases Requirements prices Sawyer offers a wide Sofware Departeent Manager Jef Gire to join her in a pilct acivity based costing sludy Requirement 1. Compute the cost allocation rate for each activity the formula and then compute the cost allocation rate for each activity (Round your answers to the nearest cent.) Activity Estimated indrect acthvity cost Cost allocation base (esimated)overhead Appl. Dev Content prod Testing 1,320,000 2,090,000 290,000 $ 440,000 application S:01 $145it hou 19 000,000 2,000 Requirement 2. Use the activity-based cost aflocation rates to compute the indrect cost of each unit of X Page and XSeculy ent Hint product line and then compute the cost per unit )(Round the cost per unit to the nearest cent) X-Page Applications development Content production Testng Total costs Number of unts Per unit contExplanation / Answer
1.
2.
Working:
3.
4.
As can be seen from the above statement the indirec cost per unit for X-Page is lower under ABC allocation method than traditional allocation method, whreas the cost per unit for X-Secure is lower under traditional method than under ABCE method.
This is becuase under the traditional method, alll the indirect costs are together allocated with a single base, whereas under ABC cost of each activity is allocated based on the driver of the activity.
The activity of content production has the highetst cost component. The driver for this is the lines of oce writtne for an application.Since X-Secure requires higher lines (7.2 million) than the X-Page (480,000 lines), the cost of content production allocated to X-Secure must be siginificantly higher (15 times higher) than the cost allocated to X-Page. But under the traditional system, The allocation if only 1.5 times to the cost of X-Page.
Activity Estimated Indirect Activity Costs Allocation Base Estimated Quantity of Allocation Base Cost per unit of Allocation Base ($) Application Development 1320000 New Applications 3 440000 Content Production 2090000 Lines of code 19000000 0.11 Testing 290000 Testing Hours 2000 145 Total 3700000Related Questions
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