Concept explainers
a)
Activity Based Costing: Activity Based Costing refers to the allocation of the factory
Activity cost pool: Activity cost pool refers to the overhead cost related to an activity. This is often calculated to get an accurate estimate of the production cost.
To Identify: The possible activity cost pool in the operation of Company EVH.
b)
Activity Based Costing: Activity Based Costing refers to the allocation of the factory overheads when there are numerous products and processes. Activity based costing aims at assigning the costs among the products in a proportionate way.
Cost Driver: The cost driver refers to the all the activities on which the money is spent to produce the product or the service. It has a cause-effect relationship with the resources utilized in production. The cost drivers are used to form the activity cost pools.
To Identify: The possible activity cost driver in the operation of Company EVH.
Want to see the full answer?
Check out a sample textbook solutionChapter 4 Solutions
Managerial Accounting: Tools for Business Decision Making
- A medical supply company has customers in eight cities. It is trying to decide how many salespeople it needs to service these customers. Each salesperson needs to be located in one of the eight cities and needs to be assigned to a subset of the customers. For example, the company might base a salesperson in New York and have this person service customers in New York, Boston, and Philadelphia. Each salesperson receives an annual salary of $70,000 and can work as many as 230 days per year. This includes days working with customers and days traveling to and from customers. The file P06_90.xlsx contains data on the annual travel costs (for example, $15,900 for a salesperson based in New York traveling for customers in Orlando), the annual number of days of work required for the customers, and the annual number of days traveling to and from customers. Find an assignment that minimizes the total cost of salaries and traveling. The solution should indicatethe number of salespeople to employ,…arrow_forwardCompton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing department. Other relevant information follows. Health Legal Services Human Resources Billing Care Retail Number of employees 10 20 80 60 40 Annual cost* $720,000 $1,428,000 $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 Annual revenue *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating…arrow_forwardCompton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing department. Other relevant information follows. Human Health Legal Services Resources Billing Care Retail Number of employees 10 20 80 60 40 $720,000 $1,428,000 $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 Annual cost* Annual revenue *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating…arrow_forward
- Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing department. Other relevant information follows. Health Legal Services Human Resources Billing Care Retail Number of employees Annual cost* 10 20 80 60 40 $6,000,000 $9,000,000 $720,000 $1,428,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 Annual revenue *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating…arrow_forwardBlue Spruce's Medical operates three support departments and two operating units, Surgery and ER. The support departments are allocated based on the hours used. The cost of operating the accounting (acct), administration (admin), and human resources (HR) departments is $272600, $158000, and $59400, respectively. Information on the hours used are as follows: Acct Admin HR Surgery ER Hours in Acct 20 48 360 220 Hours in Admin 16 8 120 80 Hours in HR 8 4 65 130 What are the total costs allocated to the ER department from the supporting departments? (Do not round the intermediate calculations.) O $199987. O $212460. O $0. O $186182.arrow_forwardThe University of Dental Health (UDH) is a state-run university focusing on the education and training of dentists, dental assistants, dental hygienists, and other dental professionals. The university provides both traditional undergraduate courses to 9,100 students and continuing professional education (CPE) courses to 4,900 practicing professionals. UDH has just hired a new controller who wants to utilize ABC. The controller has identified three key activities performed by the university and the cost of each of these activities: • UDH has three buildings with a total of 140,000 square feet of classroom and facility space. Due to the large space requirements for labs and other training facilities, the undergraduate program utilizes 126,000 square feet. Total cost, $1,526,000. • UDH offers career placement services for undergraduate students, career counseling for active professionals taking CPE courses, and other student services to both groups. Total cost, $378,000. • UDH offers…arrow_forward
- The California Community Hospital has two service departments, Cafeteria and Housekeeping, and two operating departments Surgery and Outpatient. The hospital uses the direct method to allocate service department costs to operating departments. It allocates Cafeteria costs based on the number of employees. Outpatient $360,000 45,000 Cafeteria Housekeeping $10,000 15,000 Surgery $140,000 15,000 Total Departmental costs before allocation Number of employees $40,000 20,000 $550,000 Knowledge Check 01 How much Cafeteria cost should be allocated to the Surgery department? $6,316 $8,000 $30,000 O $10,000arrow_forwarddental hygienists, and other dental professionals. The university provides both traditional undergraduate courses to 9,000 students and continuing professional education (CPE) courses to 6,000 practicing professionals. UDH has just hired a new controller who wants to utilize ABC. The controller has identified three key activities performed by the university and the cost of each of these activities: • UDH has three buildings with a total of 150,000 square feet of classroom and facility space. Due to the large space requirements for labs and other training facilities, the undergraduate program utilizes 127,500 square feet. Total cost, $1,650,000. • UDH offers career placement services for undergraduate students, career counseling for active professionals taking CPE courses, and other student services to both groups. Total cost, $420,000. • UDH offers 1,500 different instructional courses each year, 975 of which are undergraduate courses. Total cost, $3,450,000. Required: 1. Compute an…arrow_forwardGlencoe Medical Clinic operates a cardiology care unit and a maternity care unit. Colby Hepworth, the clinic’s administrator, is investigating the charges assigned to cardiology patients. Currently, all cardiology patients are charged the same rate per patient day for daily care services. Daily care services are broadly defined as occupancy, feeding, and nursing care. A recent study, however, revealed several interesting outcomes. First, the demands patients place on daily care services vary with the severity of the case being treated. Second, the occupancy activity is a combination of two activities: lodging and use of monitoring equipment. Since some patients require more monitoring than others, these activities should be separated. Third, the daily rate should reflect the difference in demands resulting from differences in patient type. Separating the occupancy activity into two separate activities also required the determination of the cost of each activity. Determining the costs…arrow_forward
- Martinez's Medical operates three support departments and two operating units, Surgery and ER. The support departments are allocated based on the hours used. The cost of operating the accounting (acct), administration (admin), and human resources (HR) departments is $261100, $156800, and $55000, respectively. Information on the hours used are as follows: Acct Admin HR Surgery ER Hours in Acct 20 48 360 220 Hours in Admin 16 8 120 80 Hours in HR 8 4 65 130 What amount of costs would be allocated from the accounting department to the other support departments (admin and HR) using the reciprocal method to allocate costs? (Do not round the intermediate calculations.) O $27522. O $28768. O $0. O $28981.arrow_forwardCheyenne's Medical operates three support departments and two operating units, Surgery and ER. The support departments are allocated based on the hours used. The cost of operating the accounting (acct), administration (admin), and human resources (HR) departments is $271000, $158300, and $68800, respectively. Information on the hours used are as follows: Acct Admin HR Surgery ER Hours in Acct 20 48 360 220 Hours in Admin 16 8 120 80 Hours in HR 8 4 65 130 What are the total costs allocated to the surgery department from the supporting departments? (Do not round the intermediate calculations.) O $280035. O $282405. O $256681. O $0.arrow_forwardThe Radiology Department provides imaging services for Emergency Medical Center. One important activity in the Radiology Department is transcribing digitally recorded analyses of images into a written report. The manager of the Radiology Department determined that the average transcriptionist could type 700 lines of a report in an hour. The plan for the first week in May called for 81,900 typed lines to be written. The Radiology Department has three transcriptionists. Each transcriptionist is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Transcriptionists are paid $23.00 per hour. The manager offered a bonus if the department could type more lines for the week, without overtime. Due to high service demands, the transcriptionists typed more lines in the first week of May than planned. The actual amount of lines typed in the first week of May was 88,900 lines, without overtime. As a result, the bonus caused the average…arrow_forward
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning