Question

Service Department Cost Activity Base for Allocation Graphics Production $200,000 number of copies Accounting 500,000 number of invoices processed Personnel Department 400,000 number of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct revenues $700,000 $850,000 $650,000 Direct operating expenses 50,000 70,000 100,000 Number of copies made 20,000 30,000 50,000 Number of invoices processed 700 800 500 Number of employees 130 145 125 How much service department cost would be allocated to the Super Division?

Answer 1

Answer:

$350,000

Explanation:

Production =  $200,000 number of copies

Accounting = $500,000 number of invoices processed

Personnel Department = $400,000 number of employees

These are all service cost

Total number of copies = 20,000 + 30,000 + 50,000 = 100,000

Total number of invoices processed = 700 + 800 + 500 = 2,000

Total number of employees = 130 + 145 + 125 = 400

Rate per service shall be as follows:

Production = $200,000/100,000 = $2 per copy

Cost of Super Division = $2 $\tiimes$ 50,000 = $100,000

Accounting = $500,000/2,000 = $250 per invoice

Cost of Super Division = $250 $\tiimes$ 500 = $125,000

Personnel Department = $400,000/400 = $1,000 per employee

Cost of Personnel Department = $1,000 $\tiimes$ 125 = $125,000

Total service cost of Super Department = $100,000 + $125,000 + $125,000

= $350,000