Extreme Manufacturing Company provides the following ABC costing information: Ac
ID: 2570275 • Letter: E
Question
Extreme Manufacturing Company provides the following ABC costing information:
Activities
Total Costs
dash–
Account inquiry
$800,000
16 comma 00016,000 hours
Account billing
$105,000
7 comma 000 comma 0007,000,000 lines
Account verification accounts
$75,000
40 comma 00040,000 accounts
Correspondence letters
$40,250
7 comma 0007,000 letters
Total costs
$1,020,250
The above activities are used by Departments A and B as follows:
Department A
Department B
Account inquiry hours
2,800 hours
4 comma 3004,300 hours
Account billing lines
800,000 lines
650 comma 000650,000 lines
Account verification accounts
14,000 accounts
12 comma 00012,000 accounts
Correspondence letters
1,100 letters
1 comma 5001,500 letters
How much of account verification costs will be assigned to Department A?
A.
$22,500
B.
$37,500
C.
$26,250
D.
$ 75,000
Activities
Total Costs
Activitydash–
cost driversAccount inquiry
$800,000
16 comma 00016,000 hours
Account billing
$105,000
7 comma 000 comma 0007,000,000 lines
Account verification accounts
$75,000
40 comma 00040,000 accounts
Correspondence letters
$40,250
7 comma 0007,000 letters
Total costs
$1,020,250
Explanation / Answer
Cost driver per account veritifiation= Total account vertification cost/ total accounts= 75000/40000= 1.875 per account
Account verification costs allocated to A= Total accounts in A* Cost driver per account verification= 14000*1.875= 26250
Option C. 26,250 is correct
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