(20 pts) NJIT wants to allocate costs to NCE and the other Colleges. Assume that

Question

(20 pts) NJIT wants to allocate costs to NCE and the other Colleges. Assume that there are three activities that determine indirect costs and have the following cost drivers: Activity Cost Driver Education Course Sections Support services Square feet of space Auxiliary Enterprises Students The cost driver activity for last year was as follows: NCE Others 1,0002,000ode 100,000 100,000eoo 4,500 15,000 1:1/reo Course sections Sq. ft. of space Students Indirect costs for the year were: Education Support services Auxiliary Enterprises 10,000.000 TOTAL $21,000,000 2 5,000,0002 $36,000,0 Compute the indirect cost allocated to NCE asing the ABC system

Explanation / Answer

Answer

1. Under Activity Based Costing, costs are computed using cost drivers for respective activities. Firstly, the cost drivers for activities are defined. On the basis of actual cost, activity rates are computed which are then allocated to products/ services.

The cost driver rates are as under:

Costs allocated to NCE would be as under:

Hence total allocated cost to NCE is $ 14,236,835.

Cost driver NCE Others Total Connected Activity Activity cost Cost driver rate (activity cost/total) Course sections 1,000 2,000 3,000 Education $21,000,000 $7,000 Sq ft of space 100,000 100,000 200,000 Support services 5,000,000 $ 25 Students 4,500 5,000 9,500 Auxiliary enterprises 10,000,000 $1052.63

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