Question

a company provides the following abc costing information: activities total costs activity cost drivers labor 384000 8000 hours gas 36000 6000 gallons invoices 180000 total costs 600000 the above activities used by their three departments are : department 1 department 2 department 3 labor 2500 hours 1400 hours 4100 hours gas 1800 gallons 1000 gallons 3200 gallons invoices 1300 invoices 300 invoices 5900 invoices how much of invoice cost will be assigned to department 2?

Answer 1

Calculation of total unit cost using Activity based method of cost allocation
Calculation of activity based overhead rates per cost driver
Activity Cost Pool	Cost driver		Total cost ($)		Annual activity per cost driver		Cost per unit ($)
Labor		No. of labor hours		384,000		8,000		48.00
Gas		No. of gallons consumed	36,000		6,000		6.00
Invoices		No. of invoices		180,000		7,500		24.00
				600,000
Assignment of each activity's overhad costs to products using ABC
		Department 1		Department 2		Department 3
Activity Cost Pool	Expected use of cost drivers per product	X	Activity based overhead rates	=	Cost assigned		Expected use of cost drivers per product	X	Activity based overhead rates	=	Cost assigned		Expected use of cost drivers per product	X	Activity based overhead rates	=	Cost assigned
Labor		2,500		48.00		120,000		1,400		48.00		67,200		4,100		48.00		196,800
Gas		1,800		6.00		10,800		1,000		6.00		6,000		3,200		6.00		19,200
Invoices		1,300		24.00		31,200		300		24.00		7,200		5,900		24.00		141,600
Total Costs assigned				162,000						80,400						357,600
Hence, invoice cost assigned to Department 2 is 7,200