S.ABC Corporation has three service departments with the following costs and act

ID: 2573062 • Letter: S

Question

S.ABC Corporation has three service departments with the following costs and activity base 6.O Service Department Activity Base for Allocation Cost $200,000 $500,000 Graphics Production # of copies # of invoices processed # of employees 7. OAccounting Personnel Department$400,000 ABC has three operating divisions, Micero. Macro and Super. Their revenue,cost and actvity informaton are as folos 10.C Micro Macro Super $700,000 $850,000 $650,000 Direct Revenues Direct Operating Expenses # of copies made # invoices processed # of employees 50,000 70,000 $100,000 50,000 30,000 12. 13. 14 15 800 145 500 700 130 125 How much service department cost will be allocated to the Micro Division? a. $200,000 b. $60,000 c. $345,000 d. $145,000

Explanation / Answer

ABC Corporation

Answer – The service department cost that would be allocated to the Micro Division is c. $345,000

Computations:

Determination of the service department cost to be allocated to the Micro Division:

Service Department

Cost

Activity Base

Micro Division

Proportion

Graphic Production

$200,000

Number of copies

20,000

20%

$40,000

Accounting

$500,000

Number of invoices processed

700

35%

$175,000

Personnel Department

$400,000

Number of employees

130

32.50%

$130,000

Total cost allocated

$345,000

Notes:

The proportions are calculated as below:

Proportion of Graphics Production department is based on number of copies,

Total number of copies in the three operating divisions = 100,000

Number of copies in Micro division = 20,000

Proportion = 20,000/100,000 = 20%

Proportion of Accounting department is based on number of invoices,

Total number of invoices = 2,000

Number of invoices in Micro division = 700

Proportion = 700/2000 = 35%

Proportion of Personnel Department is based on number of employees,

Total number of employees = 400

Number of employees in Micro Division = 130

Proportion = 130/400 = 32.5%