Question

Mertens Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry hours $200,000 10,000 hours Account billing lines $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 2,000 hours 4,000 hours Account billing lines 400,000 lines 200,000 lines Account verification accounts 10,000 accounts 8,000 accounts Correspondence letters 1,000 letters 1,600 letters How much of the account billing cost will be assigned to Department B

Answer 1

Answer:

Cost assigned to Deparment B is $112,000

Explanation:

In order to calculate the cost assigned to Department B, we will take each amount divide it by their respective drivers and multiply by the driver assigned to Department B. Then we will add up all the relevant cost to determine the total cost assigned to Department B. As shown below:

Account Inquiry Hours = $200,000 / 10,000 hours x 4,000 hours

                                      = $80,000

Account Billing Lines = $140,000 / 4,000,000 lines x 200,000 lines

                                   = $7,000

Account Verification = $75,000 / 40,000 accounts x 8,000 accounts

                                  = $15,000

Correspondence Letter = $25,000 / 4,000 letters x 1,600 letters

                                       = $10,000

Total Cost = 80,000 + 7,000 + 15,000 + 10,000

                 = $112,000