Cha x Not secure l ezto.mheducation.com/hm.tpx John\'s Custom Computer Shop (JCC
ID: 2538631 • Letter: C
Question
Cha x Not secure l ezto.mheducation.com/hm.tpx John's Custom Computer Shop (JCCS) assembles computers for both individual and corporate customers. The company is organized into two divisions: Personal and Business. Once a computer is built, it is shipped to the Receivable performs two major activities: billing and dispute resolution. Billing refers to preparing and sending the bills as well as processing the payments. Dispute resolution occurs when a customer refuses to pay, usually due to an error in billing The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. Kyle, the manager of the business division, has complained that the allocated costs from Accounts Receivable are beginning to make the business division look unprofitable and has asked you to recommend some changes to the allocation system. If he agrees with your recommendation, he will pass them on to the chief financial officer Data on costs and activities in the Accounts Receivable Department follow Number of bills prepared Number of disputes 650 80 350 1,000 70 The Accounts Receivable department incurred the following costs during the year Billing Dispute resolution Total 35,000 35,000 S 70.000 Required: a. Under the current allocation system, what is the cost that wll be alocated torn Accounts Recevable To Business? (Do not round intermediate calculations.) Pesonan Personal Business Allocated costs b. Suppose the company implements an activity-based cost system for Accounts Receivable with two activities biling and dispute resolution. What is the cost that will be allocated from Accounts Receivable to Personal? To Business? Use the number of bills prepared as the cost driver for billing costs and the number of disputes for dispute resolution costs Persona Business Billing Dispute resolution 0 Type here to search eExplanation / Answer
a.
allocation is based on number of bills:
=> $70,000 / 1,000 =>$700 per bill
allocation to personal will be = 650 bills *$700 =>$45,500.
allocation to business will be = 350 bills *$700=>$24,500.
b.
note:
billing is allocated on basis of number of bills => total billing costs / total bills =>$35,000 /1,000 =>$35 per bill.
allocation to personal = 650 * $35 =>$22,750.
allocation to business = 350*$35 =>$12,250.
dispute resolution is allocated on the basis of number of disputes resolved:
=>$35,000 / 70 =>$500 per dispute.
allocation to personal = $500 * 60 disputes=>$30,000.
allocation to business = $500*10 disputes =>$5,000.
Personal business Allocated costs $45,500 $24,500