Question

The computer department (CD) of ABC Corporation is considered a service department, and allocations of the costs incurred by this department are made to the three divisions within ABC, (X, Y, and Z) benefiting from its use. These three divisions originally requested the idea of centrally provided computer services and estimated the extent of their long term need for computer support so that the needed capacity for this service could be identified. These estimates for long term use and the actual CPU time used during the current month, December, are shown below for each using division:

Division		% of Expected Long-Term Use of Capacity		Actual CPU Hours Used In December
X Y Z Total		30 % 60 % 10 % 100%		1,500 7,500 1,000 10,000

CD’s actual costs incurred for the month of December were $500,000; CD’s budgeted monthly costs are determined using the following equation incorporating CPU Hours as the cost driver:

Budgeted Monthly CD Cost = $475,000 + $1.50 per CPU Hour

Use this information to answer the next four questions.

1. Determine the total December computer costs that should be allocated  FROM CD to the using divisions using allocation Method 1 (actual costs w/ actual use):

Group of answer choices

$490,000

$475,000

$500,000

$515,000

2. Determine the total December computer costs that should be allocated  FROM CD to the using divisions using allocation Method 2 (budgeted costs w/ actual use):

Group of answer choices

$515,000

$490,000

$500,000

$475,000

3. Indicate the $ amount of the total allocation that would be allocated TO Division Y only, using Method 2 (budgeted costs w/ actual use).

Group of answer choices

$300,000

$296,250

$294,000

$367,500

4. Indicate the $ amount of the total CD allocation that would be allocated TO Division Y only, using the Dual Rate Method.

Group of answer choices

$367,500

$300,000

$294,000

$296,250

Answer 1

1) The total December computer cost that should be allocated FROM CD to the using divisions using allocation Method 1 ( actual cost w/actual use

                             = $ 500000

2) The total December computer cost that should be allocated FROM CD to the using divisions using allocation method 2 (budgeted cost w/actual use) Given as per question – Budgeted Monthly CD cost = $ 475000 + $1.5 per CPU Hour. Actual CPU hours used for December is 10000 Hrs.   hence The total cost should be allocated is - $475000 + $1.5 x 10000 = $ 490000 3. The $ amount of the total allocation that would be allocated TO Division Y only, using Method 2 (budgeted costs w/ actual use) is The total cost should be allocated under budgeted cost is –    $475000 + $1.5 x 10000 = $ 490000 Actual CPU hours used for December is     -   10000 Hrs Actual CPU hours used for December by Y division   is - 7500 Hrs. The amount of the total allocation that would be allocated to division Y is       $490000 x 7500hrs/10000hrs = $ 367500 4. The $ amount of the total CD allocation that would be allocated TO Division Y only, using the Dual Rate Method. The total cost should be allocated under budgeted cost is –    $475000 + $1.5 x 10000 = $ 490000 % of expected long term use capacity - 60% hence    Amount allocated to y    = $294000