Question

1) 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?

A.

​$110,000

B.

​$220,000

C.

​$33,000

D.

​$24,750

2) Extreme Manufacturing Company provides the following ABC costing​ information:

Activities	Total Costs	Activity−cost drivers
Account inquiry	​$390,000	​13,000 hours
Account billing	​$275,000	​5,000,000 lines
Account verification accounts	​$130,500	​60,000 accounts
Correspondence letters	​$22,000	​4,000 letters
Total costs	​$817,500

The above activities are used by Departments A and B as​ follows:

	Department A	Department B
Account inquiry hours	​2,500 hours	​4,000 hours
Account billing lines	​800,000 lines	​650,000 lines
Account verification accounts	​9,000 accounts	​7,000 accounts
Correspondence letters	​2,000 letters	​2,400 letters

How much of correspondence costs will be assigned to Department​ A?

A.

​$11,242

B.

​$22,000

C.

​$11,000

D.

​$49,500

Answer 1

Answer-1)- The amount of account billing costs will be assigned to Department​ B = $24750.

Explanation- Amount of account billing costs will be assigned to Department​ B = (Total account billing costs/No. of lines)*Account billing lines used by Department B

= ($220000/4000000 lines)*450000 lines

= $24750

2)- The amount of correspondence costs will be assigned to Department​ A = $11000.

Explanation- Amount of correspondence costs will be assigned to Department​ A = (Total correspondence costs /Total no. of correspondence letters)* Correspondence letters used by Department A

= ($22000/4000 lines)*2000 lines

= $11000