The costs of the Accounts Receivable Department are allocated to the two divisions based on the number of bills prepared. Kyle, the manager of the business division, has complained that the allocated costs from Accounts Receivable are beginning to make the business division look unprofitable and has asked you to recommend some changes to the allocation system. If he agrees with your recommendation, he will pass them on to the chief financial officer.

Data on costs and activities in the Accounts Receivable Department follow:

PersonalBusinessTotalNumber of bills prepared550400950Number of disputes602080

The Accounts Receivable department incurred the following costs during the year:

Billing $42,750

Dispute resolution $40,000

Total $82,750

Required:

a.Under the current allocation system, what is the cost that will be allocated from Accounts Receivable to Personal? To Business?(Do not round intermediate calculations.)

b.Suppose the company implements an activity-based cost system for Accounts Receivable with two activities, billing and dispute resolution. What is the cost that will be allocated from Accounts Receivable to Personal? To Business? Use the number of bills prepared as the cost driver for billing costs and the number of disputes for dispute resolution costs.