Question

Outdoor Amusement Fun is an amusement park located in Vancouver, British Columbia. It is organized into 3 departments: arcades and shows, food and beverage, and rides. Outdoor Amusement Fun is implementing an ABC system to allocate the costs of the support activities (communications, human resources, and maintenance) to product-line departments (arcades and shows, food and beverage, and rides). Thus, the product-line departments are the cost objects. The total costs and cost drivers for each service activity are:

Activity	Total Cost	Cost Driver
Communication	$20,000	# of Memos
Human Resources	$25,000	# employees
Maintenance	$30,000	Sq. meters

Information regarding cost drivers and allocation bases is as follows:

	# Employees	Sq. Meters	# Memos
Arcades & Shows	30	6000	500
Food & Beverage	60	4000	300
Rides	35	10000	450

Direct costs and revenues for each product-line department are as follows:

	Revenues	Direct Costs
Arcades & Shows	$40,000	8000
Food & Beverage	$50,000	6000
Rides	$35,000	4000

a) Calculate the operating profit (revenues – direct costs – allocated costs) for each product-line department.

Answer 1

Allocation of cost :

	Arcades & Shows	Food & Beverage	Rides
Communications	8000	4800	7200
Human resources	6000	12000	7000
Maintainance	9000	6000	15000
Total	23000	22800	29200

a) Calculate the operating profit (revenues – direct costs – allocated costs) for each product-line department.

	Arcades & Shows	Food & BeverageFood & Beverage	Rides
Revenue	40000	50000	35000
Direct cost	-8000	-6000	-4000
Allocated cost	-23000	-22800	-29200
Operating profit	9000	21200	1800