Discount Company provides the following ABC costing information: Activities Tota

Question

Discount Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $200,000 10,000 hours Account billing $100,000 2,000,000 lines Account verification accounts $75,000 20,000 accounts Correspondence letters $ 20,000 2,000 letters Total costs $440,000 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,500 hours 2,000 hours Account billing lines 400,000 lines 250,000 lines Account verification accounts 10,000 accounts 8,000 accounts Correspondence letters 1,200 letters 1,400 letters 16) How much of the account inquiry cost will be assigned to Department A? How much of the account billing cost will be assigned to Department B? How much of account verification costs will be assigned to Department A? How much of correspondence costs will be assigned to Department A? How much of the total costs will be assigned to Department A?

Explanation / Answer

A.

account inquiry cost will be assigned to Department A=(200000/10000)×2500=50000

B.

account billing cost will be assigned to Department B=(100000/2000000)×250000=12500

C.

account verification costs will be assigned to

Department A=(75000/20000)×10000=37500

D.

correspondence costs will be assigned to Department A=(20000/2000)×1200=12000

E.

total costs will be assigned to Department A =

Account inquiry cost 50000 Account billing cost(100000/2000000)*400000 20000 Account verification account 37500 Correspondence letter cost 12000 Total cost to Department A 119500

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