Managerial Analysis
R&D activities fall into four pools with the following annual costs.
Market analysis $1,050,000
Product design 2,350,000
Product development 3,600,000
Prototype testing 1,400,000
Total
Activities Cost Drivers Estimated Drivers
Market analysis Hours of analysis 15,000 hours
Product design Number of designs 2,500 designs
Product development Number of products 90 products
Prototype testing Number of tests 500 tests
(a) Compute the activity-based overhead rate for each activity cost pool
Activity-based overhead rate = total budget overhead / basis
= 1,050,000 / 15,000
= $70 per hour (Market Analysis)
Activity-based overhead rate = total budget overhead/basis
= 2,350,000 / 2,500
= $940 per design (Product Design Number)
Activity-based overhead rate = total budget overhead/basis
= 3,600,000 /
=$40,000 per product (Product development number)
Activity-based overhead rate = total budget overhead/basis
= 1,400,000 / 500
= $2,800 per test (Number of tests)
(b) How much cost charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, provided 280 designs relating to 10 products, and 92 engineering tests requests?
=Total Annual Cost for Market Analysis / Number of Hours of Analysis
= 1,050,000 / 1800
= $583.333 per hour (Market Analysis)
= Total Annual Cost for Product Design / Total Number of Designs
= 2,350,000 / 280
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