Question

ABC Manufacturing Company provides the following ABC costing information:

      Activities     Total Costs     Activity-cost drivers

       Account inquiry                           $396,000                13,200 hours

       Account billing $300,000                5,000,000 lines

       Account verification accounts $132,000                60,000 accounts

       Correspondence letters   $22,000   4,000 letters

            Total costs                             $850,000

The above activities are used by Departments X as follows:

                                                       Department X       

       Account inquiry hours 2,000 hours           

       Account billing lines                    800,000 lines         

       Account verification accounts       9,000 accounts       

       Correspondence letters 2,000 letters          

Under the activity-based costing system, what is the total overhead cost assigned to Department X?

Answer 1

Activity rate = Estimated overhead/Activity cost drivers

Account inquiry = 396,000/13,200 = 30 per hour

Account billing = 300,000/5,000,000 = 0.06 per line

Account verification = 132,000/60,000 = 2.20 per account

Correspondence letters = 22,000/4,000 = 5.50 per letter

Account inquiry (2000*30)	60,000
Account billing lines (800,000*0.06)	48,000
Account verification accounts (9,000*2.20)	19,800
Correspondence letters (2,000*5.50)	11,000
Total overhead cost assigned to Department X	$138,800