Question
Books and Brew (BB) is a large city bookstore that sells books and music CD's, and also has a cafe. Prioe to this year, BB
Books and Brew (BB) is a large city bookstore that sells books and music CD's, and also has a cafe. Prioe to this year, BB uses a single-driver system to allocate its operating costs to each of its three product lines, using the the number of items sold as the single cost driver. But BB's management is concerned that this allocation system may not be providing the best information for making a variety of pricing decisions. BB's operating costs for 2020 were as follows:
Purchasing department | $499,000 |
Receiving department | $403,000 |
Shelf-stocking employee salaries | $464,000 |
Cashiers and floor employee salaries | $108,000 |
Books | CDs | ||
Revenue | $3,140,000 | $2,427,000 | $822,000 |
Cost of merchandise | $2,900,000 | $1,865,000 | $535,000 |
Number of purchase orders placed | 2,640 | 2,560 | 2,050 |
Number of deliveries received | 1,290 | 1,520 | 1,440 |
Hours of shelf stocking time | 15,300 | 13,500 | 10,500 |
Number of items sold | 124,000 | 104,000 | 262,000 |
1. Using BB's traditional single-driver system to allocate its operating costs in 2020, how much would be allocated to Books?
2.If BB decided to use an activity-based costing system to allocate its opearting costs in 2020, how much would have been allocated to the cafe? For cashiers and floor employee salaries, use number of items sold as the cost driver; for the other three cost categories, it should be clear what the appropriate drivers are.
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