Computing ABC allocation rates
Refer to Short Exercise 18-7. The president of Pacific suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow:
|
Activity
|
Estimated Cost
|
Allocation Base
|
Estimated Quantity of Allocation Base
|
|
Documentation preparation
|
$ 102,000
|
Pages
|
3,000 pages
|
|
Information technology support
|
156,000
|
Applications used
|
780 applications
|
|
Training
|
517,000
|
Direct labor hours
|
4,700 hours
|
|
Total indirect costs
|
$ 775,000
|
|
|
Requirement
1. Compute the cost allocation rate for each activity.