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. Currently, BB uses a single-driver system to allocate its operating costs to each of its three product lines, using the number of items sold as the single cost driver. But BB's management is concerned that this allocation system may not be providing the best information for making a variety of pricing decisions. BB's operating costs for 2019 were as follows:

Purchasing department	$492,000
Receiving department	$429,000
Shelf-stocking employee salaries	$450,000
Cashiers and floor employee salaries	$109,000

2019 information about BB's product lines is also available:

	Books	CDs	Cafe
Revenue	$3,679,000	$2,531,000	$775,000
Cost of merchandise	$2,594,000	$1,963,000	$545,000
Number of purchase orders placed	2,700	2,570	1,880
Number of deliveries received	1,270	1,840	1,680
Hours of shelf stocking time	16,000	13,600	10,200
Number of items sold	140,000	112,000	254,000

REQUIRED [ROUND ALLOCATION RATES TO THE NEAREST CENT AND ALLOCATIONS TO THE NEAREST DOLLAR.] Part A [6 tries; 5 points] Using BB's single-driver system to allocate its operating costs, how much was allocated to Books in 2019?

Tries 0/6

Part B [6 tries; 5 points] If BB had used an activity-based costing system to allocate its operating costs in 2019, how much would have been allocated to the cafe? 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.

Tries 0/6