In order to operate its customer support activity, Lucky's Amusement Park incurred $325,000 in annual costs (spread evenly amongst the four quarters of the year). Due to the large number of visitors to the park each year, Lucky has been debating whether or not they can afford to bring on additional customer support staff members. While having an annual capacity of 525,000 minutes, Lucky is going to be utilizing Time-Driven Activity-Based Costing (TDABC). They have identified the following as their key activities within the customer support function: ticket sales, park admittance, assisting customers once they enter the park, and processing customer refunds. Management has compiled information pertaining to the first two quarters of the year:
Using TDABC, what are the total costs allocated to quarter two? Also, what was the over- or underallocation of costs? (If required, round calculations to two decimal places.)
A) $80,549.78 in total costs allocated; with $700.22 overallocated
B) $80,549.78 in total costs allocated; with $700.22 underallocated
C) $81,250.00 in total costs allocated; with $700.22 overallocated
D) $81,250.00 in total costs allocated; with $700.22 underallocated

Question

In order to operate its customer support activity, Lucky's Amusement Park incurred $325,000 in annual costs (spread evenly amongst the four quarters of the year). Due to the large number of visitors to the park each year, Lucky has been debating whether or not they can afford to bring on additional customer support staff members. While having an annual capacity of 525,000 minutes, Lucky is going to be utilizing Time-Driven Activity-Based Costing (TDABC). They have identified the following as their key activities within the customer support function: ticket sales, park admittance, assisting customers once they enter the park, and processing customer refunds. Management has compiled information pertaining to the first two quarters of the year:
  Using TDABC, what are the total costs allocated to quarter two? Also, what was the over- or underallocation of costs? (If required, round calculations to two decimal places.)
A) $80,549.78 in total costs allocated; with $700.22 overallocated 
B) $80,549.78 in total costs allocated; with $700.22 underallocated 
C) $81,250.00 in total costs allocated; with $700.22 overallocated 
D) $81,250.00 in total costs allocated; with $700.22 underallocated

Quizplus · Accepted Answer

This question first requires calculation of the rate for supplying an activity and the cost per transaction. To calculate the rate for supplying an activity, divide the total cost of activity by the practical capacity available expressed in time: $325,000/525,000 minutes = $0.62/minute. Next, to calculate the cost per transaction, multiply the rate for supplying the activity by the number of minutes per transaction: Ticket Sales, $0.62 × 4 minutes = $2.48/ticket sale; Park Admittance, $0.62 × 1 minute = $0.62/admittance; Customer In-Park assistance, $0.62 × 3.5 minutes = $2.17/customer assisted; and Customer Refunds, $0.62 × 6 minutes = $3.72/refund. To obtain the total costs, multiply the cost of each transaction by its respective activity and sum the values: ($2.48 × 23,400 ticket sales) + ($0.62 × 13,600 admittances) + ($2.17 × 3,906 customers assisted) + ($3.72 × 1,508 refunds) = $58,032.00 + $8,432.00 + $8,476.02 + $5,609.76 = $80,549.78. Lastly, to determine if it was over- or underallocated, divide the $325,000.00 costs incurred by four to determine the allocation per quarter: $325,000.00/4 = $81,250.00 costs were incurred during the quarter. This means that quarter two is underallocated by ($81,250.00 - $80,549.78) = $700.22 (Choice B).

In Order to Operate Its Customer Support Activity, Lucky's Amusement