Question

Copy of Riley's Land Management Company has $27,000 in indirect costs operating her company. She has identified three activities that drive these indirect cost and created three related cost pools as detailed below:

Activities	Costs	Cost-drivers
Labor Hours	$24,000	1000 hours
Gas	$1,800	500 gallons
Invoices	$1,200	250 invoices
Total costs	$27,000

Riley has three divisions. Each division uses different amount of the cost driving activities as described below.

Department	Lawn	Bush	Plowing	Total
Labor hours (hours)	370	220	?	1000
Gas (gallons)	150	?	80	500
Invoices (invoices)	?	70	50	250

If Riley allocates indirect costs to each division using the three cost pool above and three allocation rates how much of the $1,800 in indirect costs driven by gallons of gas used labor hours will be allocated to the lawn division?

Answer 1

$540 out of $1800 will be assigned to Lawn dividion .

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost	Expected Activity (B)	Activity rate (A/B)
Gas	Number of Gallons of gas	$      1,800.00	500	$          3.60	Per Gallons of gas

Cost assigned to Lawn
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Gas	$            3.60	150	$                540.00