Question

Exercise 7-2 First Stage Allocation [LO7-2]

SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system:

Driver and guard wages	$	720,000
Vehicle operating expense		280,000
Vehicle depreciation		120,000
Customer representative salaries and expenses		160,000
Office expenses		30,000
Administrative expenses		320,000
Total cost	$	1,630,000

The distribution of resource consumption across the activity cost pools is as follows:

	Travel		Pickup and Delivery		Customer Service		Other		Totals
Driver and guard wages	50	%	35	%	10	%	5	%	100	%
Vehicle operating expense	70	%	5	%	0	%	25	%	100	%
Vehicle depreciation	60	%	15	%	0	%	25	%	100	%
Customer representative salaries and expenses	0	%	0	%	90	%	10	%	100	%
Office expenses	0	%	20	%	30	%	50	%	100	%
Administrative expenses	0	%	5	%	60	%	35	%	100	%

Required:

Complete the first stage allocations of costs to activity cost pools.

Answer is not complete.

		Pickup and	Customer
	Travel	Delivery	Service	Other	Totals
Driver and guard wages	$36,000,000selected answer incorrect	$25,200,000selected answer incorrect	$7,200,000selected answer incorrect	$3,600,000selected answer incorrect	$72,000,000
Vehicle operating expense	not attempted	not attempted	not attempted	not attempted	0
Vehicle depreciation	not attempted	not attempted	not attempted	not attempted	0
Customer representative salaries and expenses	not attempted	not attempted	not attempted	not attempted	0
Office expenses	not attempted	not attempted	not attempted	not attempted	0
Administrative expenses	not attempted	not attempted	not attempted	not attempted	0
Total cost	$36,000,000	$25,200,000	$7,200,000	$3,600,000	$72,000,000

Answer 1

Solution

Cost Allocation
	Travel	Pickup and Delivery	Customer Service	Other	Total
Driver and guard wages	$ 360,000	$ 252,000	$ 72,000	$ 36,000	$ 720,000
Vehicle Operating Expenses	$ 196,000	$ 14,000	$ 0	$ 70,000	$ 280,000
Vehicle Depreciation	$ 72,000	$ 18,000	$ 0	$ 30,000	$ 120,000
Customer Representative salaries and expenses	$ 0	$ 0	$ 144,000	$ 16,000	$ 160,000
Office Expenses	$ 0	$ 6,000	$ 9,000	$ 15,000	$ 30,000
Administrative Expenses	$ 0	$ 16,000	$ 192,000	$ 112,000	$ 320,000
Total Cost	$ 628,000	$ 306,000	$ 417,000	$ 279,000	$ 1,630,000