Question

Cameron Company has two major segments with the following information:

	East	West	Total
Annual Revenue	400,000	1,200,000	1,600,000
Annual Salesperson Salaries	300,000	450,000	750,000
Number of Customers	60	90	150
Miles Driven	180,000	120,000	300,000

The business also has overhead costs as follows:

Cost Pool	Cost in Pool	Cost Driver
Travel	72,000	# of Miles Driven
Entertainment	288,000	# of Customers
Administrative	289,000	Salaries
Total	649,000

Overhead does NOT include salesperson salaries.

a. Determine the income of each segment if overhead costs are allocated based on sales revenue.

b. Determine the income of each segment is the overhead costs are allocated using activity-based cost drivers.

Answer 1

Answer:-a)-

Cameron Company
Revenue statement(Overhead cost allocated on the basis on sales revenue)
Particulars	East	West	Total
	$	$	$
Revenue	400000	1200000	1600000
Less:-Overhead cost
Overhead cost	(400000/1600000)*649000=162250	(1200000/1600000)*649000=486750	649000
Net Income	237750	713250	951000

b)-

Cameron Company
Revenue statement(Overhead cost allocated on the basis on Activity based costing)
Particulars	East	West	Total
	$	$	$
Revenue	400000	1200000	1600000
Less:-Overhead cost
Travel	180000 miles*$.24 =43200	120000 miles*$.24 =28800	72000
Entertaiment	60 customers*$1920=115200	90 customers*$1920=172800	288000
Administrative	300000*$.385333=115600	450000*$.385333=173400	289000
Net Income	126000	825000	951000

Explanation:-

Calculation of actvity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Travel	Miles Driven	72000	300000	0.24
Entertaiment	No. of customers	288000	150	1920
Administrative	Salaries amount	289000	750000	0.3853333
	Total	649000