Question

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John's Custom Computer Shop (JCCS) assembles computers for both individual and corporate customers. The company is organized Into two divisions: Personal and Business. Once a computer is built. It is shipped to the customer. Billing for all customers is handled by the corporate Accounts Receivable Department. Accounts Receivable performs two major activities: billing and dispute resolution. Billing refers to preparing and sending the bills as well as processing the payments. Dispute resolution occurs when a customer refuses to pay, usually due to an error in billing. The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. Kyle, the manager of the Business division, has complained that the allocated costs from Accounts Receivable are beginning to make the business division look unprofitable and has asked you to recommend some changes to the allocation system. If he agrees with your recommendation, he will pass them on to the chief financial officer. Data on costs and activities in the Accounts Receivable Department follow. Business Total Number of bills prepared Number of disputes Personal 600 60 35e 20 950 89 The Accounts Receivable Department Incurred the following costs during the year. Billing Dispute resolution Total $ 33.252 36. eee $ 69, 250 Required: a. Under the current allocation system, what is the cost that will be allocated from Accounts Receivable to Personal? To Business? b. Suppose the company Implements an activity-based cost system for Accounts Receivable with two activities, billing and dispute resolution. What is the cost that will be allocated from Accounts Receivable to Personal? To Business? Use the number of bills prepared as the cost driver for billing costs and the number of disputes for dispute resolution costs. Complete this question by entering your answers in the tabs below. Required A Required B Under the current allocation system, what is the cost that will be allocated from Accounts Receivable to Personal? To Business? (Do not round intermediate calculations.) Personal Business Allocated costs < Required A Required B >

Answer 1

Part A

	Personal	Business
Allocated costs	$43737	$25513

Accounts receivable cost ÷ bills prepared = 69250/950 = $72.89 per bill

Personal = 69250*600/950 = $43737

Business = 69250*350/950 = $25513

	Personal	Business
Billing	21000	12250
Dispute resolution	27000	9000
Total allocated costs	$48000	$21250

Billing

Personal = (33250*600/950) = 21000

Business = (33250*350/950) = 12250

Dispute resolution

Personal = (36000*60/80) = 27000

Business = (36000*20/80) = 9000