Brandon Consulting Company is headquartered in Atlanta and has branch offices in Nashville and Birmingham.Brandon uses an activity-based costing system.The Atlanta office has its costs for Administration and Legal allocated to the two branch offices.Brandon has provided the following information: How much of Atlanta's cost will be allocated to Nashville?
A)$628,500
B)$663,500
C)$670,400
D)$665,300

Question

Brandon Consulting Company is headquartered in Atlanta and has branch offices in Nashville and Birmingham.Brandon uses an activity-based costing system.The Atlanta office has its costs for Administration and Legal allocated to the two branch offices.Brandon has provided the following information:   How much of Atlanta's cost will be allocated to Nashville?
A)$628,500 
B)$663,500 
C)$670,400 
D)$665,300

Quizplus · Accepted Answer

The first step in the allocation process is to determine the cost driver for each activity. For Administration, the cost driver is number of employees and for Legal, the cost driver is number of hours.

Next, we calculate the allocation rate for each activity by dividing the total cost by the total driver.

For Administration: ($1,200,000 + $180,000) / 300 = $4,600 per employee
For Legal: ($800,000 + $120,000) / 8,000 = $115 per hour

Using the allocation rate, we can now allocate the Atlanta costs to the branch offices.

For Nashville: (200 employees x $4,600 per employee) + (3,000 hours x $115 per hour) = $628,500

Therefore, the correct answer is B, $628,500 will be allocated to Nashville.

Brandon Consulting Company Is Headquartered in Atlanta and Has Branch