Johns Custom Computer Shop JCCS assembles computers for both

John\'s Custom Computer Shop (JCCS) assembles computers for both individual and corporate customers. The company is organized into two divisions: Personal and Business. Once a computer is built, it is shipped to the customer. Billing for all customers is handled by the corporate Accounts Receivable Department. Accounts Receivable performs two major activities: billing and dispute resolution. Billing refers to preparing and sending the bills as well as processing the payments. Dispute resolution occurs whena customer refuses to pay, usually due to an error in billing. 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 Number of bills prepared Number of disputes 650 65 350 15 1,000 The Accounts Receivable department incurred the following costs during the year Billing Dispute resolution Total S 50,000 40,000 $ 90,000 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.) Allocated costs 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. Biling Dispune resolution

Solution

a. As per the current allocation system the costs of account receivable department are allocated based on number of bills prepred. Total costs of account receivable department 90000 Number of bills prepared 1000 Cost per bill prepared= =90000/1000 90 Personal Business Number of bills prepared 650 350 Allocated Costs 58500 31500 b. Billing costs of account receivable department 50000 Number of bills prepared 1000 Cost per bill prepared= =50000/1000 50 Dispute Resolution costs of account receivable department 40000 Number of disputes 80 Cost per dispute= =40000/80 500 Personal Business Number of bills prepared 650 350 Number of Disputes 65 15 Billing costs Allocated 32500 17500 Dispute resolution Cost Allocated 32500 7500 Note: Best efforts have been made to answer the question correctly. In case of any descrepencies kindly comment, I will try to resolve the same Please provide positive feedback