Question

Service Department Charges and Activity Bases

Harold Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and activity bases used by the CCS department. The table also includes some assumed cost and activity base quantity information for each service for April.

CCS Service Category	Activity Base	Budgeted Cost		Budgeted Activity Base Quantity
Help desk	Number of calls	$93,450		2,100
Network center	Number of devices monitored	603,000		9,000
Electronic mail	Number of user accounts	71,000		7,100
Local voice support	Number of phone extensions	136,000		8,500

One of the profit centers for Harold Corporation is the Communication Systems (COMM) sector. Assume the following information for the COMM sector:

• The sector has 5,000 employees, of whom 30% are office employees.
• All the office employees have a phone, and 80% of them have a computer on the network.
• 90 percent of the employees with a computer also have an e-mail account.
• The average number of help desk calls for April was 1 call per individual with a computer.
• There are 260 additional printers, servers, and peripherals on the network beyond the personal computers.

a. Determine the service charge rate for the four CCS service categories for April. Round your answers to two decimal places.

CCS Service Category	Service Charge Rate
Help desk	$ Per call
Network center	$ Per device monitored
Electronic mail	$ Per e-mail account
Local voice support	$ Per phone extension

b. Determine the charges to the COMM sector for the four CCS service categories for April.

April charges to the COMM sector:
Help desk charge	$
Network center charge	$
Electronic mail charge	$
Local voice support charge	$

Answer 1

Activity based costing is the modern approach to allocate overhead costs.
Under this method the cost allocation is made on the basis of various activity by calculating rate for each activity
CCS Service Category	Activity base	Budgeted cost	Budgeted activity base Quantity	Service charge rate
Help desk	Number of calls	$93,450	2,100	$44.50	per call
Network center	Number of devices monitored	603,000	9,000	$67.00	per device monitored
Electronic mail	Number of user accounts	71,000	7,100	$10.00	Per email account
Local voice support	Number of phone extensions	136,000	8,500	$16.00	Per phone extension
Help desk charge = (5000 employees*30%*1*44.50)		$66,750
Network center = ((5000 employees*30%*80%)+260)*67		$97,820
Electronic mail = (5000 employees*30%*80%*90%*10)		$10,800
Local voice support = (5000 employees*30%*)*16		$24,000