ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 number of copies made Accounting 500,000 number of invoices processed Personnel 400,000 number of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information is as follows: Micro Macro Super Direct revenues $700,000 $850,000 $650,000 Direct operating expenses $50,000 $70,000 $100,000 Number of copies made 20,000 30,000 50,000 Number of invoices processed 700 800 500 Number of employees 130 145 125 What is the service department cost will be allocated to the Micro Division?

a. $200,000
b. $60,000
c. $345,000
d. $145,000

The correct answer is c. $345,000.

Explanation:

Total service department cost allocated

= Graphics Production cost allocated + Accounting cost allocated + Personnel cost allocated

Graphics production cost allocated

= (Activity base for allocation / Total copies made) x Micro copies

= [$200,000 / (20,000 + 30,000 + 50,000)] x 20,000

= $40,000

Accounting cost allocated

= (Activity base for allocation / Total invoices processed) x Micro invoices

= [500,000 / (700 + 800 + 500)] x 700

= $175,000

Personnel cost allocated

= (Activity base for allocation / Total employees) x Micro invoices

= [400,000 / (130 + 145 + 125)] x 130

= $130,000

Total service department cost allocated

= $40,000 + $175,000 + $130000

= $345,000

answer; that person may have a larger tax bill to pay on income taxes;

answer; capital structure decision;