Allen Company has three departments - Lawn, Bush, and Plowing. Allen Company uses ABC for the allocation of its three office costs gas, invoices) among the three departments. The following information is provided about the office costs: Activities Labor Gas Total Costs $320,000 $36,000 Invoices $40,000 Total costs $396,000 Activity-cost drivers 8,000 hours 6,000 gallons 2,500 invoices The above activities used by their three departments are:
Allen Company has three departments - Lawn, Bush, and Plowing. Allen Company uses ABC for the allocation of its three office costs gas, invoices) among the three departments. The following information is provided about the office costs: Activities Labor Gas Total Costs $320,000 $36,000 Invoices $40,000 Total costs $396,000 Activity-cost drivers 8,000 hours 6,000 gallons 2,500 invoices The above activities used by their three departments are:
Chapter1: Financial Statements And Business Decisions
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![**Cost Allocation Using Activity-Based Costing (ABC) at Allen Company**
Allen Company has three departments – Lawn, Bush, and Plowing. Allen Company uses Activity-Based Costing (ABC) for the allocation of its three office costs (labor, gas, invoices) among these departments. Below is a breakdown of the office costs and their allocation based on activity-cost drivers:
**Office Costs and Activity-Cost Drivers**
| Activities | Total Costs | Activity-cost drivers |
|------------|-------------|------------------------|
| Labor | $320,000 | 8,000 hours |
| Gas | $36,000 | 6,000 gallons |
| Invoices | $40,000 | 2,500 invoices |
| **Total costs** | **$396,000** | |
The activities used by each of the three departments are as follows:
**Activity Usage by Department**
| | Lawn Department | Bush Department | Plowing Department |
|------------------|-----------------|-----------------|--------------------|
| Labor | 2,500 hours | 1,200 hours | 4,300 hours |
| Gas | 1,700 gallons | 800 gallons | 3,500 gallons |
| Invoices | 1,600 invoices | 400 invoices | 500 invoices |
**Calculation Example:**
To determine how much of the labor cost will be assigned to the Bush Department, you can use the following formula:
\[ \text{Allocated Cost} = \left( \frac{\text{Department's Activity Usage}}{\text{Total Activity Usage}} \right) \times \text{Total Cost} \]
For labor costs assigned to the Bush Department:
1. Total labor hours for all departments = 8,000 hours
2. Labor hours for the Bush Department = 1,200 hours
3. Total labor cost = $320,000
\[ \text{Bush Department Labor Cost} = \left( \frac{1,200 \text{ hours}}{8,000 \text{ hours}} \right) \times $320,000 = 0.15 \times $320,000 = $48,000 \]
Therefore, $48,000 of the labor cost will be assigned to the Bush Department.
**Example of Answer Format:**
When inputting your answer, use numerical value without any commas,](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffcaf9a51-3a27-4fc3-b8bb-d0ae35a51c78%2Fe9872a91-a075-4ba5-a461-e731e2ef1a99%2Fk36r65_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Cost Allocation Using Activity-Based Costing (ABC) at Allen Company**
Allen Company has three departments – Lawn, Bush, and Plowing. Allen Company uses Activity-Based Costing (ABC) for the allocation of its three office costs (labor, gas, invoices) among these departments. Below is a breakdown of the office costs and their allocation based on activity-cost drivers:
**Office Costs and Activity-Cost Drivers**
| Activities | Total Costs | Activity-cost drivers |
|------------|-------------|------------------------|
| Labor | $320,000 | 8,000 hours |
| Gas | $36,000 | 6,000 gallons |
| Invoices | $40,000 | 2,500 invoices |
| **Total costs** | **$396,000** | |
The activities used by each of the three departments are as follows:
**Activity Usage by Department**
| | Lawn Department | Bush Department | Plowing Department |
|------------------|-----------------|-----------------|--------------------|
| Labor | 2,500 hours | 1,200 hours | 4,300 hours |
| Gas | 1,700 gallons | 800 gallons | 3,500 gallons |
| Invoices | 1,600 invoices | 400 invoices | 500 invoices |
**Calculation Example:**
To determine how much of the labor cost will be assigned to the Bush Department, you can use the following formula:
\[ \text{Allocated Cost} = \left( \frac{\text{Department's Activity Usage}}{\text{Total Activity Usage}} \right) \times \text{Total Cost} \]
For labor costs assigned to the Bush Department:
1. Total labor hours for all departments = 8,000 hours
2. Labor hours for the Bush Department = 1,200 hours
3. Total labor cost = $320,000
\[ \text{Bush Department Labor Cost} = \left( \frac{1,200 \text{ hours}}{8,000 \text{ hours}} \right) \times $320,000 = 0.15 \times $320,000 = $48,000 \]
Therefore, $48,000 of the labor cost will be assigned to the Bush Department.
**Example of Answer Format:**
When inputting your answer, use numerical value without any commas,
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