Books and Brew (BB) is a large city bookstore that sells books and music CD’s, 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 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 2012 were as follows:
Purchasing department$460,000
Receiving department $437,000
Shelf-stocking employee salaries $476,000
Cashiers and floor employee salaries $144,000
2012 information about BB’s product lines is also available:
BooksCD’sCafeRevenue$3,690,000$2,185,000$788,000Cost of merchandise$2,609,000$1,505,000$525,000Number of purchase orders placed2,7302,4601,830Number of deliveries received1,3801,7701,540Hours of shelf stocking time14,70014,50010,400Number of items sold115,000111,000362,000 Using BB’s single-driver system to allocate its operating costs, how much was allocated to Books in 2012? If BB had used an activity-based costing system to allocate its opearting costs in 2012, how much would have been allocated to CD’s? For cashiers and employee salaries, use number of items sold as the cost driver. For all other costs, the appropriate drivers should be clear.
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