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Copy of Riley's Land Management Company has $27,000 in indirect costs operating her company. She has...

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Accounting

Copy of Riley's Land Management Company has $27,000 in indirectcosts operating her company. She has identified three activitiesthat drive these indirect cost and created three related cost poolsas detailed below:

ActivitiesCostsCost-drivers
Labor Hours$24,000900 hours
Gas$1,800400 gallons
Invoices$1,200250 invoices
Total costs$27,000

Riley has three divisions. Each division uses different amountof the cost driving activities as described below.

Department

Lawn

Bush

Plowing

Total
Labor hours (hours)

350

200

?

900
Gas (gallons)

130

?

60

400
Invoices (invoices)

?

50

50

250

If Riley allocates indirect costs to each division using thethree cost pool above and three allocation rates how much cost willeach division be assigned per gallon of gas used in that division?(In other words, what would be the allocation rate used to assigncosts that are driven by the gallons of gas used?)

Answer & Explanation Solved by verified expert
3.8 Ratings (562 Votes)

Rate

Usage

Cost of gas assigned

Lawn

$         4.50

130

$             585.00

Bush

$          4.50

210

$             945.00

Plowing

$          4.50

60

$             270.00

400

$          1,800.00

Calculation of Activity rates

Activity Cost Pool

Activity driver

Overhead Cost

Expected Activity (B)

Activity rate (A/B)

Labor hours

Number of Hours

$    24,000.00

900

$ 26.67

Per Hours

Gas

Number of Gallons of gas

$      1,800.00

400

$ 4.50

Per Gallons of gas

Invoices

Number of invoices

$      1,200.00

250

$ 4.80

Per invoices

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