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: Purchasing department Receiving department Shelf-stocking employee salaries Cashiers and floor employee salaries $453,000 $416,000 $466,000 $139,000 2019 information about BB's product lines is also available: Books CDs Cafe Revenue $3,838,00D $2,834,000 2,780 $2,333,000 $1,621,000 2,520 $800,000 $ 535,000 1,A20 Cost of merchandise Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Number of items sold 1,570 1,710 1,220 15,500 113,000 14,200 10,500 274,000 120,000 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 the cafe in 20197 797340 Submit Answer Incorrect. Tries 5/6 Previous Tries 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 CDs? 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

Manufacturing overhead rate Total Overheads Cost of Merchandise $1,474,000 $5,190,000 28.40% % of Cost of Merchandise Part A Cost allocated to Cafe in 2019 Cost of Merchandise Overheads applied Cafe $535,000 $151,940 Answer $535,000 28.40% ABC Costing Part B Cost allocated to CDs in 2019 Purchasing department Receiving department Shelf stocking employees salaries Cashiers and employees salary Overheads applied $160,322 $145,131 $164,578 $32,400 $502,431 Answer Working notes: Calculation of Activity rates Activity Purchasing department Receiving department Shelf stocking employees salaries Cashiers and employees salary Total budgeted overheads Total Overheads $453,000 $416,000 $466,000 $139,000 $1,474,000 Total Activities 7,120 4,500 40,200 507,000 Activity rate $63.62 per purchase order $92.44 per deliveries received $11.59 per hour of shelf stock timing $0.27 per item sold CDs Allocation of Overheads - ABC method Activity Activity rate Activities used Allocated Cost Purchasing department $63.62 2,520 $160,322 Receiving department $92.44 1,570 $145,131 Shelf stocking employees salaries $11.59 14,200 $164,578 Cashiers and employees salary $0.27 120,000 $32,400 Total Overheads allocated $502,431