Provide general discussion on predetermined variable overhead criterion and its possible dependence on the activity for which it is used. Provide a variable costing income statement in which variable overhead is divided among different activities, and that each activity has its own predetermined variable overhead criterion.

The following is a partially completed lower section of a departmental expense allocation for Cozy Bookstore. It reports the total amounts of direct and indirect expenses allocated to its five (5) departments. Allocate the expenses of the two service departments (advertising and purchasing) to the three operating departments and provide the complete income statement.

Advertising and purchasing department expenses are allocated to operating departments on the basis of dollar sales and purchase orders, respectively. Information about the allocation bases for the three operating departments follows.

Allocation of Expenses to Departments Allocation Base Expense Account Bal. $698,000 Advertising Dept. $24,000 Purchasing Dept. $34.000 Books Dept. $425,000 Magazines Dept. $90,000 Newspapers Dept. $125,000 ? Total department expenses.......... Service department expenses Advertising department........ Sales Purchasing department..... .Purch, orders Total expenses allocated to operating departments............. ? ? ? ? ? ? ? ? 5 0 $ 0 ? ? Department Sales Purchase Orders Books Magazines. Newspapers Total.. $495,000 198,000 207,000 $900,000 516 360 324 1,200