1. Read the problem and question carefully to determine the cost driver. 2. Comp

Question

1. Read the problem and question carefully to determine the cost driver. 2. Compute the "overhead" rate budgeted operating costs/ budgeted driver. 3. Allocate to the specific departmentoverhead rate X driver for the specific department. Remember that with activity-based costing (Part B), there is more than one driver and more than one rate, and the allocation to a department is the sum of several individual allocation:s Each part of the problem is worth five points, and you get six tries per part Books and Brew (BB) is a large city bookstore that sells books and music CD's, and also has a cafe. Currently, BB uses a single-driver system to allocate its operating costs to each of its three product lines, using the the number of items sold as the single cost driver. But BB's management is concerned that this allocation system may not be providing the best information for making a variety of pricing decisions. BB's operating costs for 2017 were as follows: Purchasing department Receiving department Shelf-stocking employee salaries Cashiers and floor employee salaries $463,000 $441,000 $477,000 $107,000 2017 information about BB's product lines is also available: Revenue Cost of merchandise Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Number of items sold Books $3,932,000 $2,805,000 2,750 1,480 15,500 134,000 CD's $2,318,000 $1,646,000 2,490 1,690 14,900 107,000 Cafe $765,000 $535,000 2,060 1,600 11,900 254,000 REQUIRED [ROUND ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.] Part A [6 tries; 5 points] Using BB's single-driver system to allocate its operating costs, how much was allocated to CD's in 2017? 322,070 You are correct Your receipt no. is 160-1211 Part B [6 tries; 5 points] If BB had used an activity-based costing system to allocate its operating costs in 2017, how much would have been allocated to Books? For cashiers and floor employee salaries, use number of items sold as the cost driver. For all other costs, the appropriate drivers should be clear. Submit Answer Tries 0/6

Explanation / Answer

Part B: Total Operating cost alloted to Books : Allocation of: Operating costs Books purchase orders Total purchase orders Operating cost alloted to Books A B C A*B/C Purchasing Deptt Operating costs 463000 2750 7300 174418 Receiving Deptt 441000 1480 4770 136830 Shelf-stocking employee salaries 477000 15500 42300 174787 Cashiers and floor employee salaries 107000 134000 495000 28966   Total Operating cost alloted to Books 515001

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