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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Service department charges and activity bases
For each of the following service departments, identify an activity base that could be used for charging the expense to the profit center.
a. Accounts Receivable
b. Central Purchasing
c. Duplication Services
d. Electronic
e. Legal
f. Telecommunications

To determine

Concept Introduction:

Activity Based Costing (ABC):

ABC costing method is generally used to allocate the overhead costs to the product using activity rates differently for each activity. Unlike traditional method, the ABC costing method does not use the plant wide overhead rate, rather it used different allocation rate for different production activity.

To Indicate:

The activity base for each activity

Explanation

The activity base for each activity is explained as follows:

    Activity Activity Base
    Payroll Number of EmployeesThe payroll cost should be allocated on the basis of number of employees.
    Accounts PayableAmount of PurchasesThe Accounts Payable cost should be allocated on the basis of amount of purchases...

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