Rogo Company recently reorganized its computer and data processing activities. In the past, small computer units were located in accounting departments at the firm's plants and subsidiaries. These units have been replaced with a single Electronic Data Processing Department at corporate headquarters. The new department has been in operation for two years, regularly producing reliable and timely data for the past 12 months.
Because the department has focused its activities on converting applications to the new system and producing reports for the plant and subsidiary managements, little attention has been devoted to data processing costs. Now that the department's activities are operating relatively smoothly, company management has requested that the department manager recommend a cost accumulation system to facilitate cost control and the development of suitable service charging rates.
For the past 2 years, the data processing costs have been recorded in one account. The costs have then been distributed to user departments on the basis of computer time used.
Following are the costs and charging rate for the current year:

The department manager recommends that the data processing costs be accumulated by five activity centers within the department: Systems Analysis, Programming, Data Preparation, Computer Operations (processing), and Administration. The Administration activity cost should be distributed to the other four activity centers before a separate rate for charging users is developed for each of the first four activities.
The managers notes that the subsidiary accounts within the department contain the following charges:
(a) Salaries and benefits-the salary and benefit costs of all employees in the department.
(b) Supplies-disk cost, paper cost for printers, and a small amount for miscellaneous other costs.
(c) Equipment maintenance contracts-charges for maintenance contracts covering all equipment.
(d) Insurance-cost of insurance covering the equipment and the furniture.
(e) Heat and air conditioning-a charge from the corporate Heating and Air Conditioning Department estimated to be the differential costs that meet the special needs of the Electronic Data Processing Department.
(f) Electricity-the charge for electricity, based on a separate meter within the department.
(g) Equipment and furniture depreciation-the depreciation charges for all owned equipment and furniture within the department.
(h) Building improvement depreciation-the depreciation charges for the building changes that were required to provide proper environmental control and electrical service for the computer equipment.
(i) Building occupancy and security-the department's share of the depreciation, maintenance, heat, and security costs of the building; these costs are distributed to the department on the basis of square feet occupied.
(j) Corporate administrative charge-the department's share of the corporate administrative cost, which is distributed to the department on the basis of number of employees in the department.
Required:
(1) State whether each of the 10 cost items (a through j) should be allocated to the five activity centers. For each cost item that should be allocated, specify the basis on which the allocation should be made. Justify your answer in each case and indicate if the cost would be included in a rate designed to include only variable costs as opposed to a full cost rate.
(2) Calculate the total number of hours needed to determine the charging rate for Computer Operations. Use the analysis of computer utilization shown as a footnote to the department cost schedule, and assume that the Computer Operations activity cost will be charged to the user departments on the basis of computer hours. Explain.

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(a) Salaries and benefits.... (b) Supplies... (c) Equipment maintenance contract.. (d) Insurance.... (e) Heat and air conditioning (f) Electricity. (g) Equipment and furniture depreciation. (h) Building improvement depreciation (i) Building occupancy and security 0) Corporate administrative charge.. 622,600 40,000 15,000 25,000 36,000 50,000 285,400 10,000 39,300 52.700 1.176.000 Computer hours for user processing". Hourly rate ($1,176,000 2,750) 2,750 $428 Use of available computer hours: Testing and debugging programS Setup of jobs Processing jobs.. Downtime for maintenance Idle time. 250 500 2,750 750 742 4,992 Total!