Question

ABC Corporation has three service departments with the following costs and activity base: Service Department Cost...

ABC Corporation has three service departments with the following costs and activity base:

Service Department Cost Activity Base for Allocation
Graphics Production $200,000     number of copies
Accounting 500,000     number of invoices processed
Personnel Department 400,000     number of employees


ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:

Micro Macro Super
Direct revenues $700,000 $850,000 $650,000
Direct operating expenses 50,000 70,000 100,000
Number of copies made 20,000 30,000 50,000
Number of invoices processed 700 800 500
Number of employees 130 145 125


How much service department cost will be allocated to the Micro Division?

a.$145,000

b.$60,000

c.$345,000

d.$200,000

Business   Accounting   
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Answer #1
Answer is c. $ 345000
STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL
Activity Total Expected Activity
ACTIVITY COST POOL Measures Overheads Activity Rate
Graphics Production Copies 200,000 100,000 2
Accounting Invoices 500,000 2,000 250
Personal department Employees 400,000 400 1,000
Service cost allocated to Micro:
Graphics Production (20000 copies @2) 40,000
Accounting (700 invoices @250) 175000
Personal department (130 employees @1000) 130000
Total service cost 345,000
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