ABC Corporation has three service departments with the following costs and activ
ID: 2473978 • Letter: A
Question
ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 number of copies Accounting 500,000 number of invoices processed Personnel Department 400,000 number 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 Number of copies made 20,000 30,000 50,000 Number of invoices processed 700 800 500 Number of employees 130 145 125 What will the income of the Micro Division be after all service department allocations? a. $650,000 b. $610,000 c. $345,000 d. $305,000
Explanation / Answer
Answer is D $305,000 Explanation: MICRO MACRO SUPER Total Number of copies 20000 30000 50000 100,000 Number of invoices 700 800 500 2,000 Number of employees 130 145 125 400 Activity rate of Deptt. STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Graphics Copies 200,000 100,000 2 Accounting Invoices 500,000 2,000 250 Personnel Employees 400,000 400 1000 INCOME STATEMENT MICRO Number of copies 20000 Number of invoices 700 Number of employees 130 Sales revenue 700,000 Less: Operating expense 50,000 Activity Cost Graphics (20000*2) 40,000 Accounting(700 invoices@250) 175000 Personnel (130 emp. @1000) 130,000 Net income 305,000