Question

Reach Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows:
Activity Cost Pool Activity Measure Estimated Cost
General service % of time devoted to branch $706,000
Research service Computer time $139,900

Estimated branch data for next year is as follows:

% of time Computer time
Portland 25% 286,000 minutes
Dallas 60% 216,000 minutes
Miami 15% 57,600 minutes

How much of the headquarters cost allocation should Dallas expect to receive next year? (Do not round intermediate calculations.)
$509,100
$477,600
$248,000
$414,600

Answer 1

$477,600 of the headquarters cost allocation should Dallas expect to receive next year

Solution:

Cost allocation is a method of assisting the cost centres, which supply a product or service, of joint service organizations.

In effect, the corresponding costs are assigned to the cost centers of internal customers who consume goods and services.

General Service

(60% x $706,000) = $423,600

Research Service

(($139,900/ 559,600 min) x 216,000) =54,000

Total = $423,600 + 54,000  = $477,600