Problem:
A. The allocation rates for each activity in the R&D Department.
B. How much cost would be charged during the year to a manufacturing department that had consumed 2,000 hours of market research time, received aid in developing 25 new products, and requested aid for 150 engineering process changes?
Background information:
For the past 20 years, Mega Manufacturing Company has maintained an internal research and development (R&D) department. The department provides services only to in-house manufacturing departments. In recent years, the costs of operating this department has been rising dramatically. Management has determine that to control costs, it will institute an activity-based costing system and charge the in-house users of the department for the services it provides in developing products and processes. The principal expense in the department is salaries of professional workers, including marketing consultants and product and process engineering specialists. Activities in the R&D department fall into three major categories. The categories follow, along with the estimated cost of professional salaries associated with each activity:
Evaluation of Market Opportunities $1,200,000
Product Development 3,600,000
Process Design 4,800,000
Management has determined that the appropriate cost allocation base for evaluation of market opportunities is hours of professional time; for product development, the allocation base is the number of products developed; and for process design, the allocation base is the number of engineering process changes. For 2002, the R&D department worked 30,000 hours evaluating market opportunities, aided in the development of 200 new products, and responded to 1,000 engineering process change requests.