90.2K

Verified Solution

Link Copied!

Chapter 4 - ABC Costing Class Problem #1 Customer Care Company previously had used a plantwide overhead rate to allocate its overhead, de on # of hours spent on account inquiries accounts. The Company had estimated there would be 4,00 nours spent on account inquiries over the next year. This year, the company has decided to use activity based costing to allocate its overhead to have a better idea of how their overhead costs are being derived. The Company had the following activities, estimated overhead costs, and allocation bases related to its account maintenance: 30 per hour Activities Account inquiry (hours) Account billing (lines) Account verification (accounts) Correspondence (letters) Indirect Activity Costs $60,000 30,000 15,000 10,000 Allocation Base 2,000 hours 1. So 20,000 lines 20,000 accounts.75 1,000 letters The above activities are used by Departments P and Q as follows: Department P Account inquiry (hours) 100 hours Account billing (lines) 10,000 lines Account verification (accounts) 1,000 accounts Correspondence (letters) 50 letters Department Q 200 hours 7,000 lines 600 accounts 100 letters 1. Compute the plantwide overhead rate the company would have used to allocate all overhead, if it had not adopted activity based costing. 2. How much of the total overhead costs will be allocated to Department P and Department Q? Show your work, and separate costs by department

Answer & Explanation Solved by verified expert

See Answer