Eugene is the manager for Levy Corp, an HVAC company, and he is debating the implementation of Time-Driven Activity-Based Costing (TDABC). After meeting with management, he has realized that the company may not be fully utilizing their available capacity, and he believes this method will better shed some light on their current state of affairs. Eugene will begin his analysis with the customer service center. This department stays very busy and handled the following volume of activities: cold sales calls, 7,490 calls; repeat service calls, 5,806 calls; and customer concerns and complaints calls, 1,300 calls. They spent $65,000.00 last year to operate these activities. Eugene has performed an analysis and determined the following:
When you compare actual costs incurred to operate the activities to the allocated costs, what is the difference, and is that amount therefore over- or underallocated? (If required, round calculations to two decimal places.)
A) $1,404.92, overallocated
B) $1,404.92, underallocated
C) $4,325.80, overallocated
D) $4,325.80, underallocated

Question

Eugene is the manager for Levy Corp, an HVAC company, and he is debating the implementation of Time-Driven Activity-Based Costing (TDABC). After meeting with management, he has realized that the company may not be fully utilizing their available capacity, and he believes this method will better shed some light on their current state of affairs. Eugene will begin his analysis with the customer service center. This department stays very busy and handled the following volume of activities: cold sales calls, 7,490 calls; repeat service calls, 5,806 calls; and customer concerns and complaints calls, 1,300 calls. They spent $65,000.00 last year to operate these activities. Eugene has performed an analysis and determined the following:
 When you compare actual costs incurred to operate the activities to the allocated costs, what is the difference, and is that amount therefore over- or underallocated? (If required, round calculations to two decimal places.)
A) $1,404.92, overallocated 
B) $1,404.92, underallocated 
C) $4,325.80, overallocated 
D) $4,325.80, underallocated

Quizplus · Accepted Answer

This question has provided the rate for supplying an activity so the first step needed would be to calculate the cost per transaction. Cold sales calls would equal $0.89 per minute times 4.5 minutes or $4.01 per call. Repeat service calls would be $0.89 per minute times 5.25 minutes or $4.67 per call. Customer concerns/complaints calls would be $0.89 per minute times 8 minutes or $7.12 per call. Next, multiply each per-call amount by the number of calls of that type completed throughout the year. $4.01 × 7,490 calls = $30,034.90; $4.67 × 5,806 calls = $27,114.02; and $7.12 × 1,300 calls = $9,256.00. The total cost allocated will be the sum of the values calculated in the previous step = $30,034.90 + $27,114.02 + $9,256.00 = $66,404.92. Lastly, subtract $65,000 from $66,404.92, so $1,404.92 was overallocated (Choice A).

Eugene Is the Manager for Levy Corp, an HVAC Company