Question

Problem 10-57 (Algo) Activity-Based Reporting: Service Organization (LO 10-3, 4)

Allcott Computer Services (ACS) provides computer training and repair services for schools and local businesses. Sales for year 1 totaled $3,000,000. Information regarding resources for the year includes the following.

	Resources Used			Resources Supplied
Marketing	$	217,000		$	236,000
Depreciation		172,000			179,000
Training personnel		89,000			106,000
Energy		161,000			174,000
Short-term labor		410,000			610,000
Long-term labor		830,000			850,000
Administrative		143,000			160,000

   

In addition, ACS spent $86,000 on 480 repair verifications with a cost driver rate of $150.

Required:

Management has requested that you do the following:

a. Prepare a traditional income statement.

b. Prepare an activity-based income statement.

Answer 1

	Allcott Computer Services (ACS)
	Traditional Income statement for the year
	Particulars	In USD	Remarks
A	Sales	30,00,000	Given
Less:
	Marketing	2,36,000	Traditional costing works on the principal of recording the actual costs incurred.
	Depreciation	1,79,000
	Training personnel	1,06,000
	Energy	1,74,000
	Short-term labor	6,10,000
	Long-term labor	8,50,000
	Administrative	1,60,000
	Reapir Verifications	86,000
B	Total Costs	24,01,000
A-B	Profit	5,99,000
	Allcott Computer Services (ACS)
	Activity based Income statement for the year
Activity based costing is a type of absorbtion costing wherein indirect costs are allocated after creating cost pools and allocating the costs based on cost drivers.
	Particulars	In USD	Remarks
A	Sales	30,00,000	Given
Less:
	Marketing	2,17,000
	Depreciation	1,72,000
	Training personnel	89,000
	Energy	1,61,000
	Short-term labor	4,10,000
	Long-term labor	8,30,000
	Administrative	1,43,000
	Reapir Verifications	72,000	( 480 repair verifications @ $150 rate)
B	Total Costs	20,94,000
A-B	Profit	9,06,000
Note
	Under practical scernios, companies record direct costs based on actual costs.
	The direct expenses that are not attributable on per unit basis directly recorded on the basis of Absorption costing. (E.g factory electricty expenses)
	Overheads like depreciation, salaries of marketing and administrative staff that are fixed in nature are not recorded based on absorption costs.