Nova Cen ework, Ch 7 SecuriCorp operates a fleet of armored cars that make sched

ID: 2548270 • Letter: N

Question

Nova Cen ework, Ch 7 SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and numbe r of customers for the C ustomer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity based costing system: Driver and guard wages 1,100 530,ee0 410,e00 s and448,e00 Vehicle operating expense Vehicle d 308,000 600,000 Total cost s 3, The distribution of resource consumption across the activity cost pools is as follows: Travel l Delivery Service Other Totals 103 5% 25% 10% 100% 10e% 100% 100x 70% Vehicle depreciation 15% 20% Required 1 of 10

Explanation / Answer

Travel

Pickup and Delivery

Customer Service

Other

Totals

Driver and guard wages

$550,000

$385,000

$110,000

$55,000

$1,100,000

vehicle operating expense

$371,000

$26,500

$132,500

$530,000

vehicle depreciation

$246,000

$61,500

$102,500

$410,000

customer representative salaries and expense

$396,000

$44,000

$440,000

office expenses

$60,000

$90,000

$150,000

$300,000

administrative expenses

$30,000

$360,000

$210,000

$600,000

Workings and Explanation:

The costs to activity cost pools are allocated based on the percentage of usage.

For instance, allocation of Driver and guard wages cost to Travel is 50% of $1,100,000 = $550,000.

Also, since the usage of customer representative salaries and expenses, office expenses and administrative expenses for Travel is given as 0%, no allocation of these costs is made to Travel.

Likewise, costs to other activity cost pools such as Pickup and delivery, Customer service and Other are allocated based on the percentage of usage.

For instance, Vehicle operating expense and vehicle depreciation to customer service is 0%, hence none of these costs are allocated to this cost pool.

Going further, these allocated costs are used to determine the activity rates based on an allocation base, such as miles for Travel.