Question

Flannery​ Company, a manufacturer of small​ appliances, had the following​ activities, allocated​ costs, and allocation​ bases: Activities Allocated Costs Allocation Base Account inquiry​ (hours) $ 77 comma 000 2 comma 600 hours Account billing​ (lines) $ 38 comma 000 19 comma 000 lines Account verification​ (accounts) $ 20 comma 000 30 comma 000 accounts Correspondence​ (letters) $ 14 comma 000 1 comma 600 letters The above activities are carried out at two of its regional offices. Activities Northeast Office Midwest Office Account inquiry​ (hours) 100 hours 200 hours Account billing​ (lines) 10 comma 000 lines 9 comma 000 lines Account verification​ (accounts) 1 comma 000 accounts 650 accounts Correspondence​ (letters) 50 letters 110 letters What is the cost per letter for the correspondence​ activity? (Round your answer to the nearest​ cent.)

Answer 1

Answer:

Cost per letter for the correspondence​ activity= $ 8.75

Explanation:

Flannery​ Company

Given

                                 Activities Allocated      Costs Allocation Base

Account inquiry​ (hours)$ 77, 000                      2,600 hours

Account billing​ (lines) $ 38, 000                         19,000 lines

Account verification​ (accounts) $ 20,000         30,000 accounts

Correspondence​ (letters) $ 14,000                    1, 600 letters

Activities                          Northeast Office        Midwest Office

Account inquiry​ (hours)          100 hours            200 hours

Account billing​ (lines)             10,000 lines          9,000 lines

Account verification​ (accounts) 1 ,000 accounts 650 accounts

Correspondence​ (letters)           50 letters               110 letters

Calculations

Cost per letter for the correspondence​ activity= Total Correspondence/ Total No of letters

Cost per letter for the correspondence​ activity= 14000/1600= 8.75

Cost per letter for the correspondence​ activity= $ 8.75

We divide the activity cost with the corresponding cost driver to get the cost per unit of activity.