Question

SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system: Driver and guard wages $ 960,000 Vehicle operating expense 390,000 Vehicle depreciation 270,000 Customer representative salaries and expenses 300,000 Office expenses 160,000 Administrative expenses 460,000 Total cost $ 2,540,000 The distribution of resource consumption across the activity cost pools is as follows: Travel Pickup and Delivery Customer Service Other Totals Driver and guard wages 50 % 35 % 10 % 5 % 100 % Vehicle operating expense 70 % 5 % 0 % 25 % 100 % Vehicle depreciation 60 % 15 % 0 % 25 % 100 % Customer representative salaries and expenses 0 % 0 % 90 % 10 % 100 % Office expenses 0 % 20 % 30 % 50 % 100 % Administrative expenses 0 % 5 % 60 % 35 % 100 % Required: Complete the first stage allocations of costs to activity cost pools.

Answer 1

Answer:

SecuriCorp

The First level Allocations will be:

Of a total cost of $2,540,000

Travel allocated costs is $915,000

Pick Up and Delivery is $451,000

Customer Service is $690,000

Others is $484,000

Explanation:

the next level of allocation will be to determine the cost rate based on the Activity Measures, however these were not provided in the question

Activity Based Costing is a costing technique that allocates costs based on the activity level of certain pre-determined cost drivers.

Instead of taking the pool of costs and dividing it by Volume to arrive at an Average Costs, Activity Based Costing believes all components leading to the cost generated should bear the burden of the cost by determining the Driver rate per activity.

If from the example we have worked above, we are told the number of miles covered is 20,000 miles and the actual Cost we worked out for Travels was $960,000. This implies we have an activity rate of $48 Per mile covered as travels costs.

The same would apply to Customer Services if for example 3,000 customers were attended to in the period, the Rate Per Customer will become $690,000 divided by 3,000 = $230 Per Customer

With these indices, it is easy to then allocate costs on the basis of miles traveled + Customers Attended to etc