Required information [The following information applies to the questions displayed below) Miami Valley Architects Inc. provides a wide range of engineering and architectural consulting services through its three branch offices in Columbus, Cincinnati, and Dayton, Ohio. The company allocates resources and bonuses to the three branches based on the net income of the period. The results of the firm's performance for the most recent year follows ($ in thousands): Sales Less Direct labor Direct materials Overhead Net Income Columbus $1,500 382 281 710 5 127 Cincinnati $1,419 317 421 589 $ 92 Dayton $1,067 317 185 589 $ (24) Total $ 3,986 1,016 887 1.888 $ 195 Miami Valley accumulates overhead items in one overhead pool and allocates it to the branches based on direct labor dollars. For this year, the predetermined overhead rate was $1.859 for every direct labor dollar incurred by an office. The overhead pool includes rent, depreciation, and taxes, regardless of which office incurred the expense. Some branch managers complain that the overhead allocation method forces them to absorb a portion of the overhead incurred by the other offices Management is concerned with the recent operating results. During a review of overhead expenses, management noticed that many overhead items were clearly not correlated to the movement in direct labor dollars as previously assumed. Management decided that applying overhead based on activity-based costing and direct tracing wherever possible should provide a more accurate picture of the profitability of each branch An analysis of the overhead revealed that the following dollars for rent, utilities, depreciation, and taxes could be traced directly to the office that incurred the overhead ($ in thousands): Columbus Cincinnati $180 $ 270 Dayton $ 177 Total $627 Direct overhead Activity pools and their corresponding cost drivers were determined from the accounting records and staff surveys as follows: General administration Project costing Accounts payable/receiving Accounts receivable Payroll/Mail sort and delivery Personnel recruiting Employee Insurance processing Proposals Sales meetings/Sales aids Shipping Ordering Duplicating costs Blueprinting $ 409,000 48,000 139,000 47,000 30,000 38,000 14,000 139,000 202,000 24,000 48,000 46,000 77.000 $ 1,261,000 Cost Driver Direct labor cost Timesheet entries Vendor Invoices Client invoices Employees New hires Insurance claims filed Proposals Contracted sales Projects shipped Purchase orders Copies duplicated Blueprints Amount of Cost Driver use by Location Columbus Cincinnati Dayton 382,413 $ 317,086 $ 317,188 6,000 3.000 3,500 1,020 850 588 444 96 23 26 18 8 4 7 230 260 180 200 250 60 1,824,439 1,399,617 571,28 99 124 30 135 110 30 162,500 146,250 65,000 39,000 31,200 16,00 Required: 1. What overhead costs should be assigned to each branch based on ABC concepts? 2. What is the contribution of each branch before subtracting the results obtained in requirement 1? 3. What is the profitability of each branch office using ABC? Required 1 Required 2 Required 3 What overhead costs should be assigned to each branch based on ABC concepts? (Enter your answers in thousands of dollars. Round your intermediate calculations and final answers to 2 decimal places.) Cincinnati Dayton Total Activity Based Overhead Allocation (000s) Columbus General administration Project costing Accounts payable receiving Accounts receivable Payroll Mall sort and delivery Personnel recruiting Employee insurance processing Proposals Sales meetings/Sales aids Shipping Ordering Duplicating costs Blueprinting Total s 0.00 Cost Driver Direct labor dollar Timesheet entries Vendor invoices Client invoices Employees New hires Insurance claims filed Proposals Contracted sales Projects shipped Purchase orders Copies duplicated Blueprints $ 0.00 $ 0.005 0.00 Required 2 >
