Question

The accounting department of a large limousine company is analyzing the costs of its services. The cost data and level of activity for the past 16 months follow:

Month	Special Analyses	Customer Accounts	Paychecks Processed	Accounting Service Costs
1	2	325	1,029	$ 63,800
2	4	310	993	68,900
3	2	302	1,268	64,000
4	1	213	1,028	61,300
5	2	222	984	61,600
6	0	214	712	50,800
7	1	131	762	51,020
8	1	123	739	54,300
9	0	115	708	50,500
10	2	296	1,232	64,800
11	2	213	978	58,000
12	1	222	929	57,500
13	2	217	1,059	62,200
14	2	132	942	54,900
15	4	300	1,299	71,530
16	4	315	1,283	64,800
Totals	30	3,650	15,945	$959,950

Page 199

In addition to the information on the previous page, you learn that the accounting department had the following total costs for the past 16 months for each of the following:

Total cost of paychecks processed	$180,100
Total cost of maintaining customer accounts	109,600
Total cost of performing special analyses	120,000
Total fixed costs (total for 16 months)	550,250
Total costs	$959,950

Required

What is the cost per unit for (1) paychecks processed, (2) customer accounts maintained, and (3) special analyses performed?

Assuming the following level of cost-driver volumes for a month, what are the accounting department’s estimated costs of doing business using the account analysis approach?

1,000 paychecks processed

200 customer accounts maintained

3 special analyses

Answer 1

Account Analysis Method
Table 1
Calculation of per unit rate	Total Cost	No of Activity	Per Unit
Variable Cost	(A)	(B)	C=(A/B)
Paychecks Processed	$1,80,100	15,945	$11.30
Maintaining Customer Account	$1,09,600	3,650	$30.03
Performing Special Analyses	$1,20,000	30	$4,000.00
Total variable cost (i)	$4,09,700
Fixed Cost (ii)	$5,50,250	Total for 16 month
Total Cost of doing business (i+ii)	$9,59,950
Table 2
Estimation of Cost of doing business	Total Cost	No of Activity		Per Unit
Variable Cost	(A) = B X C	Estimate (B)		C=per unit rate	Remarks
Paychecks Processed	$11,295	1,000		$11.30	Variable cost is estimated by using the rate per unit derived in table 1 by multiplying the number of estimated activity
Maintaining Customer Account	$6,005	200		$30.03
Performing Special Analyses	$12,000	3		$4,000.00
Total variable cost (i)	$29,301
Fixed Cost (ii)	$34,391	Fixed cost for 1 month**			Fixed cost is estimated to remain constant
Total Cost of doing business (i+ii)	$63,691
**Fixed cost is derived by dividing total fixed cost for 16 months @ $5,50,250 by 16