QUESTION 1

Smart Store Limited is a small regional chain of supermarkets in the Northern Cape. The chain mangers their accounting per store but in addition they run the Deli, Butchery, and Goods sections as separate reporting cost centres. In addition they have two service departments the Finance Department that deals with the financial administration and the Inventory Department that deals with the ordering, delivery and warehousing of goods. They are currently reviewing the profitability and efficiency of the three cost centres and have adopted an Activity Based Costing (ABC) approach. The following information has been extracted from their accounting and activity records:

The following Overheads are to be appointed:

COST R BASIS OF ALLOCATION TO COST CENTRES

Ordering Cost 250 000 Number of order issued

Goods Received Costs 320 000 Number of Goods Received Notes issued

Management and Administration Costs 1 200 000 Rand value turnover

Property Costs 850 000 Square meters occupied

Warehousing Costs 650 000 Number of inventory Requests sent to warehouse

Maintenance Costs 180 000 Number of maintenance requests

In addition the Finance Department's costs will be allocated based on the Gross Cash flows of the departments and the inventory costs based on the total purchases of the year. The direct costs of the Finance Department were R675 000 and the direct costs of the Inventory Department R400 000.

The following activities took place during the year:

ACTIVITY DELI BUTCHERY GOODS FINANCE INVENTORY TOTAL

Orders issued 520 370 5895 70 105 6960

Goods Received Notes 610 350 6000 80 100 7140

Turnover R1.5M R2.1M R10M NIL NIL R13.6M

Square meters 500 300 4 100 100 1 000 6 000

Inventory requests 180 1 400 2 500 NIL NIL 4080

Maintenance Requests 500 500 1 945 15 40 3 000

Gross Cash Flow R2.3M R3.7M R18M NIL NIL R24M

Purchases R0.8M R1.6M R8M NIL NIL R10.4M

REQUIRED:

Calculate the Total Overhead Costs that are to be allocated to the DELI, BUTCHERY and GOODS Retail Departments.