Armada Shipping is a global logistics company. The company is organized Into two divisions: Contracts and Retall. The Contracts

Division, which is by far the larger division, handles customers who have regular shipping requirements and have signed contracts

specifying costs and schedule for up to one year. The Retall Division handles shipments for customers who have only occasional

shipping requirements and pay on an as$-$used basis. Billing for all customers is handled by the corporate Accounts Recelvable

Department. Accounts Recelvable performs two major actlvitles: billing and accounts. BIlling refers to preparing and sending the bills

as well as processing the payments. Accounts refers to establishing accounts, ensuring credit status, following up on collection, and so

on$.$

The costs of the Accounts Recelvable Department are allocated to the two divisions based on the number of bills prepared. The

manager of the Contracts Division has complained that the allocated costs from Accounts Recelvable are beginning to make the

Contracts Division look unprofitable and has asked the Finance Department to recommend some changes to the allocation system.

Data on costs and actlvitles in the Accounts Recelvable Department follow:

The Accounts Recelvable Department Incurred the following costs during the year.

Required:

a$.$ Under the current allocation system, what is the cost that will be allocated from Accounts Recelvable to the Contracts Division? To

the Retall Division?

b$.$ Suppose the company Implements an actlvity$-$based cost system for Accounts Recelvable with two actlvitles, billing and accounts.

What is the cost that will be allocated from Accounts Recelvable to the Contracts Division? To the Retall Division? Use the number of

bills prepared as the cost driver for billing costs and the number of new accounts$/$collections for accounts costs.

Complete this question by entering your answers in the tabs below.

Required $B$

Suppose the company implements an activity$-$based cost system for Accounts Receivable with two activities, billing and

accounts. What is the cost that will be allocated from Accounts Receivable to the Contracts Division? To the Retail Division?

Use the number of bills prepared as the cost driver for billing costs and the number of new accounts$/$collections for accounts

costs.