Question

WD Imagine Inc. has three locations in Canada: Vancouver, Toronto and Montreal. The company develops and maintains web-designs for medium size companies. Management of Vancouver office is concerned about the cost of handling web-related matters.

WD Imagine Vancouver Office has provided the following data for the year 2019:

Junior web-designers salaries          $ 280,000

Senior web-designers salaries            $ 320,000

Office manager salary                        $ 120,000

WD accountant believes that apart from salaries all other expenses are fixed costs and cannot be meaningfully assigned to individual job.

The employees of WD-Vancouver Office have prepared the following table that shows how their time was distributed last year across the two activities

Employee group	Developing complex web-design jobs	Routine web-design maintenance jobs	Other	Total
Junior web-designers Wages	50%	40%	10%	100%
Senior web-designers wages	40%	30%	30%	100%
Office manager salary	5%	20%	75%	100%

Jobs at Vancouver office during 2019 were as follows:

Activity	Total Activity at Vancouver branch
Developing complex web-design	100 Jobs
Routine web-design maintenance	800 jobs

The costs relating to these activities for Toronto office are listed below:

Activity	Cost per Activity for Toronto Bank
Developing complex web-design	$ 3,000 per job
Routine web-design maintenance jobs	$ 200 per job

Required:

a. Compute Vancouver office activity rates for developing complex wed-design AND Routine web-design jobs.

b. Compare the Vancouver results to that of Toronto Office. Suggest two possible reason for the discrepancies noted in each activity rate: complex wed-design AND Routine web-design jobs. (ie 4 in total).

Answer 1

a.

we will first allocate cost as per emplyee time distribution

	Developing complex webs and design	Routine web design maintenance jobs	other
Junior web designer wages	$140,000($280,000*50%)	$112,000($280,000*40%)	$28,000($280,000*10%)
seniors web designer wages	$128,000($320,000*40%)	$96,000($320,000*30%)	$96,000($320,000*30%)
Office manager salary	$6,000($120,000*5%)	$24,000($120,000*20%)	$90,000($120,000*75%)
Total	$274,000	$232,000	$214,000

Cost per job

(1) Developing complex we design = Total cost/ total activity

$274,000/100 jobs

=$2,740 per job

(2) Routine web design maintenance=$232,000/800

=$290 per job

(2) main reaason for the difference

	Vancouver office	Toronto office
Developing complex we design	$2,740 per job	$3,000 per job
Routine web design maintenance	$290 per job	$200 per job

• Allocation of cost depends upon employee's time distribution. Developing complex web design is consuming more time of senior webdesigners. so rate are high per job.

          So, one reason is time distribution of employees.

• Another reason is number of jobs.Higher the number of jobs lower the rate per job.

            Routine web design maintenance is having higher activity(number of jobs).

           So, cost per activity is lower.