Question

please help with both parts asap! Thanks

This is a cost allocation problem for a merchandising firm. Since merchandising firms do not have overhead, you must allocate "operating costs" instead of "overhead costs." Also, the allocations in this problem are to a department, not to a product or job. Nonetheless, the allocation process is the same. Just follow the three steps used in the lectures: 1. Read the problem and question carefully to determine the cost driver. 2. Compute the "overhead" rate - budgeted operating costs / budgeted driver. 3. Allocate to the specific department - overhead rate x driver for the specific department. Remember that with activity-based costing (Part B), there is more than one driver and more than one rate, and the allocation to a department is the sum of several individual allocations. Each part of the problem is worth five points, and you get six tries per part. Books and Brew (BB) 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 $483,000 Receiving department $409,000 Shelf-stocking employee salaries $465,000 Cashiers and floor employee salaries $116,000 2019 information about BB's product lines is also available: Books CDs Cafe $821,000 $3,862,000 $2,791,000 Revenue Cost of merchandise Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Number of items sold $2,392,000 $1,830,000 2,580 1,790 $525,000 1,910 2,780 1,560 14,700 14,300 100,000 1,650 11,700 275,000 135,000 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 Submit Answer Incorrect. Tries 4/6 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 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. Submit Answer Tries 0/6

Answer 1

G28 Х B C с А (amount in $) 483000 409000 465000 1 PARTA 2 Cost Allocation rate or Overhead rate = Total Operating Cost/Total Cost of Merchandise 3 Operating Costs: 4 Purchasing Department 5 Receiving Department 6 Shelf stocking employee salaries 7 Cashiers and floor employee salaries 8 Total Operating Costs 9 10 Total Cost of Merchandise (2791000+1830000+525000) 11 Overhead rate 12 13 Using Single Driver system, Operating cost allocated to Café in 2019 14 116000 1473000 5146000 1473000/5146000 = 0.2862 per cost driver i.e cost of merchandise 525000*0.2862 = $ 150276.91 15 16 17 PART B 18 Statement showing Operating Cost allocation to BOOKS as per ACTIVITY BASED COSTING SYSTEM: 19 20 Operating costs: Allocation Base 21 Purchasing Department (483000/7270*2780) Number of purchase order placed 22 Receiving Department (409000/5000*1560) Number of delieveries received 23 Shelf stocking employee salaries (465000/40700*14700) Hours of shelf stocking time 24 Cashiers and floor employee salaries (116000/510000*135000) Number of items sold 25 Cost Allocated in $ 184696.01 127608 167948.4 30705.88 $ 510958.29 26 NOTE: I have presented the figures upto two decimals and not rounded off the amounts. OPPO 27 Please don't forget to Give THUMBS UP 28