NAME: Trilles, Paula Jasmine A.

COURSE/BLOCK: BS Accountancy 2-A

STRATEGIC COST MANAGEMENT & ACCOUNTING
ABC EXERCISE 1

Postman Company provides the following ABC costing information:

Activities Total Costs Activity Cost Drivers

Account Inquiry Hours P400,000 10,000 hours

Account Billing Line P280,000 4,000,000 lines

Account Verification Accounts P150,000 40,000 accounts

Correspondence Letters P50,000 4,000 letters

TOTAL COSTS P880,000

The above activities are used by Departments A and B as follows:

Department A Department B

Account Inquiry Hours 2,000 hours 4,000 hours

Account Billing Line 400,000 lines 200,000 lines

Account Verification Accounts 10,000 accounts 8,000 accounts

Correspondence Letters 1,000 letters 1,600 letters

REQUIRED:

1. How much of the account inquiry cost will be assigned to Department A?

Account Inquiry Cost Dept. A = (P400,000 ÷ 10,000 hours) x 2,000 hours
Account Inquiry Cost Dept. A = P40 / hour x 2,000 hours
Account Inquiry Cost Dept. A = P80,000

2. How much of the account billing cost will be assigned to Department B?

Account Billing Cost Dept. B = (P280,000 ÷ 4,000,000 lines) x 200,000 lines
Account Billing Cost Dept. B = P0.07 / line x 200,000 lines
Account Billing Cost Dept. B = P14,000
3. How much of account verification costs will be assigned to Department A?
Account Verification Cost Dept. A = (P150,000 ÷ 40,000 accounts) x 10,000 accounts
Account Verification Cost Dept. A = P3.75 / account x 10,000 accounts
Account Verification Cost Dept. A = P37,500

4. How much of the correspondence costs will be assigned to Department B?

Correspondence Cost Dept. B = (P50,000 ÷ 4,000 letters) x 1,600 letters
Correspondence Cost Dept. B = P1.25 / letter x 1,600 letters
Correspondence Cost Dept. B = P20,000

5. How much of the total costs will be assigned to Department A?

Activities Total Activity Costs Department A Total

Costs Drivers

Account Inquiry Hours P400,000 ÷ 10,000 hours x 2,000 hours P 80,000

Account Billing Line P280,000 ÷ 4,000,000 lines x 400,000 lines P 28,000
Account Verification P150,000 ÷ 40,000 accounts x 10,000 accounts P 37,500
Accounts

Correspondence Letters P50,000 ÷ 4,000 letters x 1,000 letters P 12,500

TOTAL COST DEPARTMENT A = P 158,000

6. How much of the total costs will be assigned to Department B?

Activities Total Activity Costs Department B Total

Costs Drivers

Account Inquiry Hours P400,000 ÷ 10,000 hours x 4,000 hours P 160,000

Account Billing Line P280,000 ÷ 4,000,000 lines x 200,000 lines P 14,000
Account Verification Accts. P150,000 ÷ 40,000 accounts x 8,000 accounts P 30,000
Correspondence Letters P50,000 ÷ 4,000 letters x 1,600 letters P 20,000

TOTAL COST DEPARTMENT B = P 224,000