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Problem 4: Explanation of ABC Costing The United Center is home to both the Chicago Blackhawks and the Chicago Bulls addition to hosting other special
Problem 4: Explanation of ABC Costing The United Center is home to both the Chicago Blackhawks and the Chicago Bulls addition to hosting other special events (circus, Disney On Ice, etc). They are trying determine the profitability of each type of activity (Bulls, Blackhawks, and Special Events). They have identified the following costs and want to use ABC to allocate these costs: Interest on Mortgage / Real Estate Taxes Salaries of Maintenance Personnel Set-Up Costs for Events (games and special events) Ticket Reservations / Ticket Sales $15,000,000 750,000 400,000 1,200,000 Here is other data related to the allocation of the indirect costs. Bulls Total Dates 45 Total Tickets Sold 900,000 Total Set-Up Hours 3.000 Total Clean-Up 1,200 Hours Average Ticket $90 Price Blackhawks 45 800,000 6,000 1,800 Special Events 30 450,000 7,500 1,000 $110 $60 Write a memo to Mary Reinsdorf-Wirtz, CEO of the United Center. In the memo explain to her the concept of ABC and how the above costs should be allocated. Also, attach a partial income statement showing revenues, the indirect costs (all four) and net income for each type of event and the total. You will have to decide how to allocate the indirect costs however use ABC and show the allocation for all four indirect costs. The memo should be professionally typed and reviewed for errors
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