Question

Books and Brew (BB) is a large city bookstore that sells books and music CDs, and also has a cafe. Currently, BB uses a single driver system to allocate its operating costs to each of its three product lines, using cost of merchandise as the single cost driver. But BB's management is concerned that this allocation system may not be providing the best Information for making a variety of pricing decisions. BB's operating costs for 2019 were as follows: $485,000 5434,000 Purchasing department Receiving department Shelf-stocking employee salaries Cashiers and floor employee salarles 5498,000 $138,000 2019 information about BB's product lines is also available: Books CDs Cafe Revenue $3,706,000 52.541,000 5776,000 Cost of merchandise $2,584,000 $1,836,000 $575,000 2,600 2,460 2,010 1,430 1,620 1,430 Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Number of items sold 14,600 11,500 13,600 102,000 120,000 262,000 REQUIRED (ROUND ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.] Part A [6 tries; 5 points] Using BB's single-driver system to allocate its operating costs, how much was allocated to CDs in 2019? Submit Answer Tries 0/6 Part B [6 tries; 5 points) If BB had used an activity-based costing system to allocate its operating costs in 2019, how much would have been allocated to Books? For cashiers and floor employee salaries, use number of items sold as the cost driver; for the other three cost categories, it should be clear what the appropriate drivers are.

Answer 1

Part-A	Total Operating Cost	$ 1,555,000	=485000+434000+498000+138000
	Total Number of units sold	484,000	=120000+102000+262000
	Allocation rate	$ 3.21	=1555000/484000
	Operating costs allocated to CDs in 2019	$ 327,420	=102000*3.21

Part-B		A	B	A/B
		Cost $	Driver Base	Allocation rate	Allocation Base
	Purchasing department	485,000	7,070	68.60	Per number of purchase order placed
	Receiving department	434,000	4,480	96.88	Per number of deliveries received
	Shelf-stocking employee salaries	498,000	39,700	12.54	Per hour of shelf stocking time
	Cashiers and floor employee salaries	138,000	484,000	0.29	Per number of item sold
		Amount $
	Purchasing department	178,360	=2600*68.6
	Receiving department	138,538	=1430*96.88
	Shelf-stocking employee salaries	183,084	=14600*12.54
	Cashiers and floor employee salaries	34,800	=120000*0.29
	Operating costs allocated to books	534,782

	Working:
		A	B	A/B
		Cost $	Driver Base	Allocation rate	Allocation Base
	Purchasing department	485,000	=2600+2460+2010	68.60	Per number of purchase order placed
	Receiving department	434,000	=1430+1620+1430	96.88	Per number of deliveries received
	Shelf-stocking employee salaries	498,000	=14600+13600+11500	12.54	Per hour of shelf stocking time
	Cashiers and floor employee salaries	138,000	=120000+102000+262000	0.29	Per number of item sold