Question

A company has a processing department with 10 stations. Because of the nature and use of three of these stations, each is considered a separate cost center for IDC allocation. The remaining seven are grouped as one cost center, CC190. Operating hours are used as the allocation basis for all sta- tions. A total of $250,000 is allocated to the de- partment for next year. Use the data collected this year to determine the IDC rate for each center. Cost Center CC100 CC110 CC120 CC190 IDC Allocated $25,000 $50,000 $75,000 $100,000 Operating Hours 800 200 1200 1600

Answer 1

CC100 has $31.25 per hour

CC11O has $250 per hour

CC120 has $62.5 per hour

CC190 has $62.5 per hour

Step-by-step explanation:

The IDC rate for each department would be the department IDC allocated divided by operating hours as shown below:

CC100

IDC rate=$25,000/800=$31.25 per hour

CC110

IDC rate=$50,000/200=$250 per hour

CC120

IDC rate=$75,000/1200=$62.5 per hour

CC190

IDC rate=$100,000/1600=$62.5 per hour

Judging from the IDC rates of the departments,department CCC110 seems to have the highest IDC rate per hour,which implies that each hour is charged with $250 against the CC100 where each operating hours is just $31.25.

The higher the IDC rate in a department the higher the cost of the output of that department since the cost has to be recovered from output.