Question

Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $320,000 16,000 hours Account billing $220,000 4,000,000 lines Account verification accounts $182,000 80,000 accounts Correspondence letters $25,000 4,000 letters Total costs $747,000 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,200 hours 3,700 hours Account billing lines 600,000 lines 450,000 lines Account verification accounts 5,000 accounts 3,000 accounts Correspondence letters 1,000 letters 1,400 letters How much of the account billing cost will be assigned to Department B

Answer 1

Answer:

Account Billing Cost assigned to Department B = $24,750

Explanation:

Given activity and their respective cost drivers

For Account Billing Activity Total cost = $220,000

Cost driver = 4,000,000 lines

Rate per line = $220,000/4,000,000 = $0.055 per line

Provided Actual Activity of both departments

Total lines assigned to Department B = 450,000 lines

Thus Account Billing Cost assigned to Department B = $0.055 X 450,000 lines

= $24,750