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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

Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser’s activities in its central Financial Services Department:
• Payroll
• Accounts payable
• Accounts receivable
• Database administration—report preparation
For each activity, identify an activity base that could be used to charge user divisions for service.

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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