Question

ABC Corporation has three service departments with the following costs and activity base:

Service Department	Cost	Activity Base for Allocation
Graphics Production	$200,000	# of copies
Accounting	$500,000	# of invoices processed
Personnel Department	$400,000	# of employees

ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information for December 31, 2017 are as follows:

	Micro	Macro	Super
Direct Revenues	$700,000	$850,000	$650,000
Direct Operating Expenses	$50,000	$70,000	$100,000
# of copies made	20,000	30,000	50,000
# invoices processed	700	800	500
# of employees	130	145	125

Prepare departmental income statements AFTER allocating service department costs to the three operating divisions.

ABC Departmental Income Statement December 31, 2014
	Graphics	Accounting	Personnel	Micro	Macro	Super

Answer 1

Answer-

ABC CORPORATION
DEPARTMENTAL INCOME STATEMENT
DECEMBER 31,2014
OPERTAING DIVISIONS	MICRO	MACRO	SUPER
	$	$	$
Direct revenues	700000	850000	650000
Less- Direct operating expenses	50000	70000	100000
Less- Service department costs
Graphics	$2 per copy*20000 copies = $40000	$2 per copy*30000 copies = $60000	$2 per copy*50000 copies = $100000
Accounting	$250 per invoice processed*700 invoices = $175000	$250 per invoice processed*800 invoices = $200000	$250 per invoice processed*500 invoices = $125000
Personnel	$1000 per employee*130 employees = $130000	$1000 per employee*145 employees = $145000	$1000 per employee*125 employees = $125000
Departmental Income $	305000	375000	200000

Explanation-

Calculation of actvity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Graphics Production	No. of copies	200000	100000	$2 per copy made
Accounting	No. of invoices processed	500000	2000	$250 per invoice processed
Personnel Department	No. of employees	400000	400	$1000 per employee
Total $		1100000