Chapter 12, Problem 15P

Problem 4-18A Selecting an appropriate cost driver (What is the base?)

The Huffman School of Vocational Technology has organized the school training programs into three departments. Each department provides training in a different area as follows: nursing assistant, dental hygiene, and office technology. The school’s owner, Amy Huffman, wants to know how much it costs to operate each of the three departments. To accumulate the total cost for each department, the accountant has identified several indirect costs that must be allocated to each. These costs are $12,000 of phone expense, $21,000 of office supplies, $900,000 of office rent, $144,000 of janitorial services, and $150,000 of salary paid to the dean of students. To provide a reasonably accurate allocation of costs, the accountant has identified several possible cost drivers. These drivers and their association with each department follow:

Required

1. a. Identify the appropriate cost objects.
2. b. Identify the appropriate cost driver for each indirect cost and compute the allocation rate for assigning each indirect cost to the cost objects.
3. c. Determine the amount of telephone expense that should be allocated to each of the three departments.
4. d. Determine the amount of supplies expense that should be allocated to Department 3.
5. e. Determine the amount of office rent that should be allocated to Department 2.
6. f. Determine the amount of janitorial services cost that should be allocated to Department 1.
7. g. Identify two cost drivers not listed here that could be used to allocate the cost of the dean’s salary to the three departments.