Question

Exercise 7-2 First-Stage Allocation in a Service Company (LO2] Help se MobileCash Corporation operates a fleet of armoured cars that make scheduled pickups and deliveries for its customers. The company is implementing an ABC system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Othe The activity measures are kilometres for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost po and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure. The following costs will assigned using the ABC system: $ Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses 382,000 298,000 164,000 194,000 47,000 368,000 Total cost $1,953,000 The distribution of resource consumption across the activity cost pools is as follows: Other Pickup and Customer Travel Delivery Service 35% 40% 15% 75% 0% 70% 10% Totals 100% 10% 5% 20% 20% 100% 100% 0% 20% 45% 100% 100% Driver and guard wages Vehicle operating expense Vehicle depreciation Customer representative salaries and expenses Office expenses Administrative expenses 0% 20% 10% 100% 40% frontal front

Answer 1

	Travel	Pickup and Delivery	Customer Service	Other	Totals
Driver and guard wages	$308,700 ($882,000 × 35%)	$352,800 ($882,000 × 40%)	$132,300 ($882,000 × 15%)	$88,200 ($882,000 × 10%)	$882,000
Vehicle operating expense	$223,500 ($298,000 × 75%)	$14,900 ($298,000 × 5%)	$0 ($298,000 × 0%)	$59,600 ($298,000 × 20%)	$298,000
Vehicle depreciation	$114,800 ($164,000 × 70%)	$16,400 ($164,000 × 10%)	$0 ($164,000 × 0%)	$32,800 ($164,000 × 20%)	$164,000
Customer representative salaries and expenses	$0 ($194,000 × 0%)	$0 ($194,000 × 0%)	$155,200 ($194,000 × 80%)	$38,800 ($194,000 × 20%)	$194,000
Office expenses	$0 ($47,000 × 0%)	$9,400 ($47,000 × 20%)	$16,450 ($47,000 × 35%)	$21,150 ($47,000 × 45%)	$47,000
Administrative expenses	$0 ($368,000 × 0%)	$36,800 ($368,000 × 10%)	$184,000 ($368,000 × 50%)	$147,200 ($368,000 × 40%)	$368,000
Total cost	$647,000	$430,300	$487,950	$387,750	$1,953,000

• Activity Based Costing is a costing technique wherein overhead costs are assigned to activities based on the resource consumption by each activity to form a cost pool.
• These activity costs are then allocated to each unit of product produced based on the activity used by the product.
• Each activity will have an activity cost allocation rate.
• Activity allocation Rate = Total costs incurred for the activity ÷ Activity cost driver
• Activity cost driver is any factor that will cause a change in the activity cost.