Question

Discount Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers
Account inquiry   $200,000 10,000   hours
Account billing   $140,000 4,000,000   lines

Account verification accounts   $75,000   40,000   accounts
Correspondence letters   $ 25,000 4,000   letters
   Total costs   $440,000

The above activities are used by Departments A and B as follows:

Department A   Department B
Account inquiry hours   2,500   hours   4,000   hours
Account billing lines   400,000   lines     250,000   lines
Account verification accounts   10,000   accounts   8,000   accounts
Correspondence letters   1,200   letters   1,600   letters

16) How much of the account inquiry cost will be assigned to Department A?

17) How much of the account billing cost will be assigned to Department B?

18) How much of account verification costs will be assigned to Department A?

19) How much of correspondence costs will be assigned to Department A?

20) How much of the total costs will be assigned to Department A?

21) How much of the total costs will be assigned to Department B?

Answer 1

16) Account inquiry cost assigned to Department A = 200000/10000*2500 = 50000

17) Account billing cost assigned to Department B = 140000/4000000*250000 = 8750

18) Account verification costs assigned to department A = 75000/40000*10000 = 18750

19) Correspondence costs assigned to Department A = 25000/4000*1200 = 7500

20) Total cost assigned to Department A = 50000+14000+18750+7500 = 90250

21) Total cost assigned to Department B = 80000+8750+15000+10000 = 113750