Practice ABC Problem

Teecorp Company provides the following ABC costing information:

Activities Total Costs Activity-cost driversLabor $320,000 8,000 hoursGas $36,000 6,000 gallonsInvoices $40,000 2,500 invoices

Total costs $396,000

The above activities used by their three departments are:

Lawn DepartmentBush Department Plowing DepartmentLabor 2,500 hours 1,200 hours 4,300 hoursGas 1,700 gallons 800 gallons 3,500 gallonsInvoices 1,600 invoices 400 invoices 500 invoices

1) How much of the labor cost will be assigned to the Bush Department?

Labor cost assigned = ($320,000 ÷ 8,000) × 1,200 = $48,000

2) If labor hours are used to allocate the non-labor, overhead costs, what is the overhead allocation rate?

Overhead allocation rate = ($36,000 + $40,000) ÷ 8,000 = $9.5

3) How much of invoice cost will be assigned to the Bush Department?

($40,000/ 2,500 invoices) × 400 invoices = $6,400

4) How much of the gas cost will be assigned to the Lawn Department?

Explanation: B) Gas cost = ($36,000 ÷ 6,000 gallons) × 1,700 gallons = $10,200

5) How much of the total cost will be assigned to the Plowing Department?

($320,000 / 8,000) × 4,300= $172,000($36,000 / 6,000) × 3,500 = $21,000($40,000 / 2,500) × 500 = $8,000

$201,000

6) How much of the total costs will be assigned to the Lawn Department?

Ans $135,800