Question

Happy Valley Land and Snow Company provides the following ABC costing information:

Activities                             Total Costs         Activity-cost drivers
Labor hours                          $420,000                     8,000 hours
Gas                                       $136,000                     6,000 gallons
Invoices                                $140,000                     2,500 invoices
   Total costs                         $696,000

The above activities used by their three departments are:

Lawn Department   Bush Department   Plowing Department

Labor hours 2,500 hours          1,200 hours                 4,300 hours
Gas 1,500 gallons           800 gallons 3,700 gallons
Invoices 1,600 invoices         400 invoices 500 invoices

a) How much of the total costs will be assigned to the Lawn Department? $ _________
b) How much of the total costs will be assigned to the Bush Department? $ _________
c) How much of the total cost will be assigned to the Plowing Department? $ _________
d) What would have been the costs for each department if these total costs had been allocated equally? $ __________

please explain

Answer 1

Activity	Total Cost [A]	Activity cost driver [B]	Rate [A/B]
Labor hrs	420,000	8,000 hrs	$52.50 per hr
Gas	136,000	6,000	$22.67 per gallon
Invoices	140,000	2500	$56 per invoice
	$696,000

(a) Total cost assigned to lawn deptt.

Labor	2,500 hrs x 52.50	131,250
Gas	1,500 gallons x 22.67 i.e. [136,000/ 6,000 x 1,500]	34,000
Invoices	1,600 invoices x 56	89,600
Total cost		254,850

(b) Total cost assgined to Bush deptt

Labor	1200 x 52.50	63,000
Gas	800 x 22.67 [136,000/ 6,000 x 800]	18,133
Invoices	400 x 56	22,400
Total cost		103,533

(c) Total cost assgined to Plowing deptt

Labor	4300 x 52.50	225,750
Gas	3700 x 22.67 [136,000/ 6,000 x 3700]	83,867
Invoices	500 x 56	28,000
Total cost		337,617

(d) Cost for each deptt = Total cost/ No. of departments

= $696,000/3

= $232,000 to each deptt