ABC Corporation has three service departments with the following costs and activ

Question

ABC Corporation has three service departments with the following costs and activity base:

Service Department Cost Activity base

Graphics Production$ 200,000 # of copies

Accounting $500,000 # of invoices processed

Personnel Department $400,000 # of employees

ABC has three operating divisions, Micro, Macro, and Super. Their revenue, cost and activity information are as follows:

Micro Macro Super

Direct Revenues 700,000 850,000 650,000

Direct Operating Expenses 50,000 70,000 100,000

# of copies made 20,000 30,000 50,000

# invoices processed 700 800 500

# of employees 130 145 125

A. How much service department cost will be allocated to the Micro Division?

B. How much service department cost would be allocated to the Macro Division?

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Service department cost allocated to the Micro Division = 200000*20000/100000 + 500000*700/2000 + 400000*130/400 = 345000

Part B:

Service department cost allocated to the Macro Division = 200000*30000/100000 + 500000*800/2000 + 400000*145/400 =

405000

You need to calculate the base for each type of service by adding the activity volume such as it would be 100000 (20000 + 30000 + 50000) for the number of copies and 2000 (700 + 800 + 500) for invoices processed.

Thanks.

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