This is a cost allocation problem for a merchandisingfirm. Since merchandising firms do not have overhead, you mustallocate "operating costs" instead of "overhead costs." Also, theallocations in this problem are to a department, not to a productor job. Nonetheless, the allocation process is the same. Justfollow the three steps used in the lectures:

Read the problem and question carefully to determine thecost driver.

Compute the "overhead" rate - budgeted operating costs /budgeted driver.

Allocate to the specific department - overhead rate Xdriver for the specific department.

Remember that with activity-based costing (Part B),there is more than one driver and more than one rate, and theallocation to a department is the sum of several individualallocations.

Books and Brew (BB) is a large city bookstore that sells booksand music CD's, and also has a cafe. Currently, BB uses asingle-driver system to allocate its operating costs to each of itsthree product lines, using the the number of items sold as thesingle cost driver. But BB's management is concerned that thisallocation system may not be providing the best information formaking a variety of pricing decisions. BB's operating costs for2017 were as follows:

Purchasing department	$492,000
Receiving department	$443,000
Shelf-stocking employee salaries	$481,000
Cashiers and floor employee salaries	$117,000

2017 information about BB's product lines is also available:

	Books	CD's	Cafe
Revenue	$3,512,000	$2,333,000	$731,000
Cost of merchandise	$2,502,000	$1,710,000	$525,000
Number of purchase orders placed	2,740	2,400	2,000
Number of deliveries received	1,230	1,880	1,480
Hours of shelf stocking time	15,300	13,900	11,100
Number of items sold	132,000	100,000	259,000

REQUIRED [ROUND ALLOCATION RATES TO THE NEARESTCENT AND ALLOCATIONS TO THE NEAREST DOLLAR.]

Using BB's single-driver system to allocate its operating costs,how much was allocated to Books in 2017?

If BB had used an activity-based costing system to allocate itsoperating costs in 2017, how much would have been allocated toCD's? For cashiers and floor employee salaries, use number of itemssold as the cost driver. For all other costs, the appropriatedrivers should be clear.