Activity-based Costing Problem

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R&D activities fall into four pools with the following annual costs:
Market Analysis $ 3,600,000.00
Product Design $ 1,250,000.00
Product Development $ 2,100,000.00
Prototype Testing $ 1,500,000.00
Activity analysis determines that the appropriate cost drivers and their usage for the four activities are:
Activities Cost Drivers Total Estimated Drivers
Market Analysis Hours of analysis 1200 hours
Product Design Number of designs 2000 designs
Product Development Number of products 100 products
Prototype Testing Number of tests 500 tests
a) Compute the activity-based overhead rate for each pool. Use appropriate excel formulas to show your work
Market Analysis
Product Design
Product Development
Prototype Testing
b) How much cost would be charged to an in-house manufacturing department that consumed 1,800 hours of
market analysis time, was provided 280 designs relating to 10 products and requested 92 engineering tests?
Show your work.
Market Analysis
Product Design
Product Development
Prototype Testing
Total
c) How much cost would serve as the basis for for pricing an R&D bid with an outside company on a contract that
would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests?
Show your work.
Market Analysis
Product Design
Product Development
Prototype Testing
Total
d) What is the benefit to Johnson Manufacturing of applying activity-based costing to its R&D activity for both
in-house and outside charging purposes?

Johnson Manufacturing Company of Portland, Oregon has a Research & Development department that currently provides services to in-house manufacturing departments. Other manufacuturers have expressed interested in using Johnson's R&D department for special projects. Management has decided to conduct an activity-based costing system in order to determine charges for both outside and in-house users of the department's services.

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