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 number of copies Accounting 500,000 number of invoices processed Personnel Department 400,000 number of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows: Micro Macro Super Direct revenues $700,000 $850,000 $650,000 Direct operating expenses 50,000 70,000 100,000 Number of copies made 20,000 30,000 50,000 Number of invoices processed 700 800 500 Number of employees 130 145 125 What is the service department charge rate for Graphics Production? a. $2.00 b. $6.66 c. $0.50 d. $10.00

Answer 1

a. $2.00

Step-by-step explanation:

The computation of the charge rate for Graphics production is shown below;

Charge rate = Graphics production cost ÷ total allocation

where,

Graphic production cost = $200,000

And the total allocation equal to

= Micro Number of copies made + Macro Number of copies made + Super Number of copies made

= 20,000 + 30,000 + 50,000

= 100,000

Now put these values to the above formula

So, the value would equal to

= $200,000 ÷ 100,00

= $2

As the cost driver is given in the question for graphics production i.e Number of copies made. So we consider it