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Unformatted text preview: Homework questions: (found “on page “COURSE” bottom right hand corner “Questions about concepts & homework”) 4-61 Hi all, I'm having trouble with figuring out how to apply ABC costing to this problem. If we are solving for repair costs, would these costs equal the Pharmacy's direct repair costs only? Indirect costs would be allocated on the basis of square footage? Any help would be appreciated! Thanks. Hi ... I'm going to step in, since I've received a couple emails on this one as well - however, I do welcome others to add their own explanations too ... more than one way of explaining is often helpful! The allocation is somewhat tricky, because routine maintenance is being allocated using different cost drivers from repairs. Pharmacy Routine Maintenance Repairs Administration $ 214 $ 6 Labor 2,400 108 Supplies 400 200 Total $3,014 $314 First, consider administration. The total cost is $15,000. There were 14,000 labor hours, so the rate would be $1.071 per hour. The pharmacy had 6 hours of repairs and would be charged $6.43. Repairs in other departments took 3,994 hours and would be charged $4,279.29. However, what about the remaining $10,714.28 of administrative cost? The administration related to routine work cannot be charged based on hours because we do not know the hours for each department. The pharmacy is 2% of the square feet, so it will be allocated 2% of this remaining administrative cost, or $214.29, with the balance of $10,499.99 being charged to other departments. The pharmacy department consumed repairs that required 6 hours of labor at $18 per hour, or a total of $108. The other departments consumed 3,994 hours at $18 per hour, or $71,892. The remaining 10,000 hours at $12 per hour, or $120,000, are allocated based on square feet; 2% of $120,000 is $2,400, and 98% of $120,000 is $117,600.$2,400, and 98% of $120,000 is $117,600....
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- Spring '11
- square feet, square footage, routine maintenance