BYP1?-2 Ideal Manufacturixlg Company of Sycamore, Illinois, has supported a research and de-velopment (R&D) department that has for many years been the sole contributor to the companysnew farm machinery products. The R&D activity is an overhead cost center that provides servicesonly to in-house manufacturing departments (four different product lines), all of which produceagrictilturalffaimfranch related machinery products.The department has never sold its services outside, but because of its long history of success,larger manufacturers of agricultural products have approached [deal to hire its R&D departmentfor special projects. Because the costs of operating the R&D department have been spiraling un-controllabl_v, 1deals management is considering entertaining these outside approaches to absorbthe increasing costs. But. (1) management doesnt have any cost basis for charging R&D servicesto outsiders, and (2) it needs to gain control of its R&D costs. Management decides to implementan activity-based costing system in order to determine the charges for both outsiders and the in-house users of the departments services.R&D activities fall into four pools with the following annual costs.Market analysis $1,050,000Product design 2,350,000Product development 3,600,000Prototype testing 1,400,000Activity analysis determines that the appnopriate cost drivers and their usage for the four ac-tivities are:TotalActivities Cost Drivers Estimated DriversMarket analysis Hours of analysis 15,000 hoursProduct design Number of designs 2,500 designsProduct development Number of pm-ducts 90 productsPrototype testing Number of tests 500 testsinshm:tions(a) Compute the activity-based overhead rate for each activity cost pool.(b) How much cost would be charged to an in-house manufacturing department that consume-d1,800 hours of market analysis time, was provided 280 designs relating to 10 products, andrequested 92 engineering tests?lfc) How much cost would serve as the basis for pricing an R&D bid with an outside companyon a contract that would consume 800 hours of analysis time, require ITS designs relating to3 products, and result in Yo engineering tests?(cl) What is the benefit to Ideal Manufacturing of applying activity-based costing to its R&,D ac-tivity for both in-house and outside charging purposes?
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