Question

The Apex Company’s copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of 5,000,000 copies:

Salaries (fixed)		$100,000
Employee benefits (fixed)		12,500
Depreciation of copy machines (fixed)		10,000
Utilities (fixed)		5,000
Paper (variable, 1 cent per copy)		50,000
Toner (variable, 1 cent per copy)		50,000

The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.

Assuming 4,800,000 copies were made during the year, 2,500,000 for sales and 2,300,000 for administration, calculate the copy department costs allocated to sales and administration.

Costs allocated to sales		$ FIND THE ANSWER
Costs allocated to administration		$ FIND THE ANSWER

Answer 1

Expected activity : 5,000,000 copies

Actual activity : 4,800,000 copies

Assigning of Fixed costs:

Salaries $100,000   

Employee benefits $12,500

Depreciation $10,000

Utilities $5,000

Total fixed costs $127,500

Here, actual no. of copies are 4,800,000 but since fixed costs do not vary in accordance with the volume, the whole of the fixed costs shall be assigned between sales and administration in the ratio of 40:60

Fixed costs assigned to sales @40% = 127500*40% = $51,000

Fixed costs assigned to administration @60% = 127,500*60% = $76,500

Assigning of variable costs:

Variable costs for expected activity of 5,000,000 copies are: Paper $50000 + Toner $50,000 = $100,000

Therefore, the variable costs for actual 4,800,000 copies are: (100,000 * 4,800,000) / 5,000,000 = $96,000

Rate of assigning the variable costs = 2 cents = $ 2/100 = $0.02

At a rate of 2 cents per copy, the variable costs assigned to sales will be = 2,500,000 * 0.02 = $50,000

At a rate of 2 cents per copy, the variable costs assigned to administration will be = 2,300,000 * 0.02 = $46,000

Therefore, the total costs allocated to sales are =$51,000 + $50,000 = $101,000

Therefore, the total costs allocated to administration are = $76,500 + $46,000 = $122,500