ABC Corporation has three service departments with the following costs and activity base: Service Department Cost Activity Base for Allocation Graphics Production $200,000 number of copies made Accounting 500,000 number of invoices processed Personnel 400,000 number of employees ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information is as follows:

Micro Macro Super
Direct revenues $700,000 $850,000 $650,000
Direct operating expenses $50,000 $70,000 $100,000
Number of copies made 20,000 30,000 50,000
Number of invoices processed 700 800 500
Number of employees 130 145 125

What will the income of the Macro Division be after all service department allocations?

$305,000

Explanation:

                                   Micro       Macro    Super  Total

Number of copies     20,000    30,000   50,000  100,000

Number of invoices    700      800          500   2,000

Number of employees 130         145           125     400

Statement of activity rate of activity pool

                             Activity       Total      ExpectedActivity

Activity pool cost Measures   OverheadsActivityRate

Graphics                  Copies   $200,000       100,000  2

Accounting             Invoices  500,000         2,000250

Personnel               Employee 400,000        400  1000

Income Statement    

Micro    

Copies Number                           20,000    

Invoices Number                          700    

Employees Number                      130    

Sales revenue                               $700,000    

Less: Operating expenses           $50,000    

Activity Cost      

Graphics (20,000 × 2)                    40,000    

Accounting(700 invoices × 250)    175,000    

Personnel (130 employees × 1000) 130,000    

Net income                                      $305,000

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