Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: $$\begin{array} { l l l }
\text { Activity Cost Pool } & \text { Activity Measure } & \text { Estimated Cost } \
\text { Adminstrative service } & \% \text { of time devoted to branch } & \$ 700,000 \
\text { Development service } & \text { Computer time } & \$ 140,000
\end{array}$$ Estimated branch data for next year is as follows:
$$\begin{array} { l c r }
& \text { Time to branch } & \text { Computer time } \
\text { Nashville } & 60 \% & 150,000 \text { minutes } \
\text { Atlanta } & 30 \% & 200,000 \text { minutes } \
\text { Louisville } & 10 \% & 50,000 \text { minutes } \
\text { Total } & 100 \% & 400,000 \text { minutes }
\end{array}$$
- How much of the headquarters cost allocation should Nashville expect to receive next year?
A) $280,000
B) $472,500
C) $560,000
D) $504,000
E) $409,500

Question

Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: $$\begin{array} { l l l } 
\text { Activity Cost Pool } & \text { Activity Measure } & \text { Estimated Cost } \
\text { Adminstrative service } & \% \text { of time devoted to branch } & \$ 700,000 \
\text { Development service } & \text { Computer time } & \$ 140,000
\end{array}$$ Estimated branch data for next year is as follows:
$$\begin{array} { l c r } 
& \text { Time to branch } & \text { Computer time } \
\text { Nashville } & 60 \% & 150,000 \text { minutes } \
\text { Atlanta } & 30 \% & 200,000 \text { minutes } \
\text { Louisville } & 10 \% & 50,000 \text { minutes } \
\text { Total } & 100 \% & 400,000 \text { minutes }
\end{array}$$
- How much of the headquarters cost allocation should Nashville expect to receive next year?
A) $280,000
B) $472,500
C) $560,000
D) $504,000
E) $409,500

Quizplus · Accepted Answer

To calculate the amount of the headquarters cost allocation that Nashville should expect to receive next year, we need to use the following formula:

Nashville's share of Administrative Service costs + Nashville's share of Development Service costs = Nashville's total share of overhead costs

From the table, we can see that Nashville is expected to have 100 Administrative Service units and 75 Development Service units. Therefore, Nashville's share of the total Administrative Service costs is:

(100 / 400) x $1,000,000 = $250,000

Similarly, Nashville's share of the total Development Service costs is:

(75 / 300) x $1,500,000 = $375,000

Adding these two amounts together, we get:

$250,000 + $375,000 = $625,000

This is Nashville's total share of overhead costs. To find out the amount of the headquarters cost allocation that Nashville should expect to receive, we need to subtract Nashville's own overhead costs from this amount. From the table, we can see that Nashville's own overhead costs are $152,500. Therefore:

$625,000 - $152,500 = $472,500

So the answer is B.

Founder Consulting Corporation Has Its Headquarters in Memphis and Operates