Question

Books and Brew (BB) is a large city bookstore that sells books and music CDs, and also has a cafe. Currently, BB uses a single driver system to allocate its operating costs to each of its three product lines, using cost of merchandise as the single cost driver. But BB's management is concerned that this allocation system may not be providing the best information for making a variety of pricing decisions. BB's operating costs for 2019 were as follows: $485,000 $412,000 Purchasing department Receiving department Shelf-stocking employee salaries Cashiers and floor employee salaries $489,000 $139,000 2019 information about BB's product lines is also available: Books CDs Cafe Revenue $3,662,000 $2.585,000 2,700 $2,192,000 $1,547,000 2,440 $834,000 $555,000 1,910 Cost of merchandise Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Number of items sold 1,320 15,500 1,820 13,500 110,000 1,650 10,700 250,000 132,000 REQUIRED (ROUND ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.] Part A [6 tries; 5 points] Using BB's single driver system to allocate its operating costs, how much was allocated to CDs in 2019? Submit Answer Tries 0/6

Answer 1

Manufacturing overhead rate per machine hour Total Overheads $1,525,000 Cost of Merchandise $4,687,000 32.54% % of Cost of Merchandise Part A Cost allocated to CDs in 2019 Cost of Merchandise Overheads applied CDs $1,547,000 $503,394 Answer $1,547,000 *32.54% ABC Costing Part B Cost allocated to Books in 2019 Job Cost Sheet Purchasing department Receiving department Shelf stocking employees salaries Cashiers and employees salary Overheads applied Books $185,733 $113,533 $190,960 $36,960 $527,186 Answer Working notes: Calculation of Activity rates Activity Purchasing department Receiving department shelf stocking employees salaries Cashiers and employees salary Total budgeted overheads Total Overheads $485,000 $412,000 $489,000 $139,000 $1,525,000 Total Activities 7,050 4,790 39,700 492,000 Activity rate $68.79 per purchase order $86.01 per deliveries received $12.32 per hour of shelf stock timing $0.28 per item sold Allocation of Overheads - ABC method Books Activity Activity rate Activities used Allocated Cost Purchasing department $68.79 2,700 $185,7331 Receiving department $86.01 1,320 $113,5331 Shelf stocking employees salaries $12.32 15,500 $190,960 Cashiers and employees salary $0.28 132,000 $36,960 Total Overheads allocated $527,186