Chomyn provides a variety of consulting services to a diverse range of clients. The company has three support departments and two operating departments, whose cost details for a typical quarter are presented below:
Support Departments
Information systems………………………………$ 268,000
Administration…………………………………………..347,000
Legal………………………………………………………….192,000
Operating Departments
Research…………………………………………………….822,000
Preparation…………………………………………………590,000
………………………………………………………………$2,219,000
The existing cost allocation system is designed as follows: (1) the support department costs are allocated to the two operating departments, and (2) the operating department costs are allocated to individual jobs. The support department costs are allocated to the operating departments as follows: (1) information systems department costs are allocated to research and preparation using a 60:40 ratio, (2) administration department costs are allocated using a 30:70 ratio, and (3) legal department costs are allocated using a 50:50 ratio. The costs accumulated in the two operating departments are allocated to individual jobs using research-hours and preparation-hours, respectively. The research and preparation departments recorded 9,000 and 7,500 hours, respectively, for the quarter.
Required:
1. Compute the predetermined cost allocation rates for the two operating departments.
2. Using the rates computed in part (1) above, assign the costs to jobs L123 and L342. The two jobs consumed 340 and 480 research-hours, respectively, and 600 and 750 preparation-hours, respectively.
3. You have recently learned about activity-based costing and decide to use five activity cost pools, one for each department. The additional information you have collected is as follows:
Compute the predetermined allocation rate for each activity cost pool.
4. In addition to the research-hours and preparation-hours specified in part (2) above, the two jobs consumed the following additional resources:
Assign the costs to the two jobs using activity-based costing.
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