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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

El 4-4 Activity bases for service department charges

For each of the following service departments, select the activity base listed that is most appropriate for charging service expenses to responsible units.

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:

    Service Department Activity Base
    a6Accounts Receivable cost should be allocated on the basis of number of sales invoices
    b5Central Purchasing cost should be allocated on the basis of number of purchase requisitions
    c1Computer Support cost should be allocated on the basis of number of computers

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