Question

1. The controller of XYZ Co, provided the following 2019 data compiled by the company’s systems representing all of the company’s production costs. Loyola is currently engaged in the process of replacing all of its existing systems as their independent accountants have concluded that their systems are not reliable and accordingly, they cannot opine on the year-end financial statements until the systems are replaced. For simplicity, assume there is no beginning inventory and assume all inventory produced during the year was sold during the year.

System generated data

    Square feet used Direct costs                  

       Receiving 20,000 $3,000,000

       Materials kitting 20,000 $5,000,000

       Assembly 30,000 $6,000,000     

       Inspection 30,000 $4,000,000    

       Rent, heating, air conditioning $5,000,000

   

Considering all of the above, the total costs of the inspection department under ABC allocation principles you should conclude is correct is:

Answer 1

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Loyola Company	Amount $
Department	Square feet used	Note
Receiving	20,000.00	A
Materials kitting	20,000.00	B
Assembly	30,000.00	C
Inspection	30,000.00	D
Total Square feet used	100,000.00	E=A+B+C+D
Rent, heating, air conditioning costs	5,000,000.00	F
Cost per Square feet	50.00	G=F/E
Square feet used by Inspection Department	30,000.00	See C
Cost per Square feet	50.00	See G
Cost allocated to Inspection Department	1,500,000.00	H=C*G
Add: Direct costs of Inspection Department	4,000,000.00	I
Total costs of the inspection department under ABC allocation principle is	5,500,000.00	J=H+I