This is a cost allocation problem for a merchandising firm. Since merchandising firms do not have overhead, you must allocate "operating costs" instead of "overhead costs." Also, the allocations in this problem are to a department, not to a product or job. Nonetheless, the allocation process is the same. Just follow the three steps used in the lectures:

1. Read the problem and question carefully to determine the cost driver.
2. Compute the "overhead" rate - budgeted operating costs / budgeted driver.
3. Allocate to the specific department - overhead rate X driver for the specific department.

Remember that with activity-based costing (Part B), there is more than one driver and more than one rate, and the allocation to a department is the sum of several individual allocations. Each part of the problem is worth five points, and you get six tries per part. ______________________________________________________ Books and Brew (BB) is a large city bookstore that sells books and music CDs, and also has a cafe. Prior to this year, BB used a single-driver system to allocate its operating costs to each of its three product lines, with cost of merchandise as the single cost driver. But BB's management was concerned that this allocation system was not providing the best information for making its many pricing decisions. BB's budgeted operating costs for 2021 were as follows:

Purchasing department	$491,000
Receiving department	$444,000
Shelf-stocking employee salaries	$470,000
Cashiers and floor employee salaries	$115,000

The following is budgeted 2021 information for BB's three product lines:

	Books	CDs	Cafe
Revenue	$3,830,000	$2,541,000	$769,000
Cost of merchandise	$2,804,000	$1,941,000	$545,000
Number of purchase orders placed	2,620	2,570	1,990
Number of deliveries received	1,320	1,670	1,590
Hours of shelf stocking time	15,300	14,300	11,400
Number of items sold	126,000	110,000	251,000

REQUIRED [ROUND ALLOCATION RATES TO TWO DECIMAL PLACES.] Part A [6 tries; 5 points] Using BB's traditional single-driver system to allocate its operating costs in 2021, how much would be allocated to the cafe?

Incorrect.

Tries 1/6

Previous Tries

Part B [6 tries; 5 points] If BB decided to use an activity-based costing system to allocate its operating costs in 2021, how much would be allocated to CDs? 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.