Inglis Library Case
Inglis Library Case Questions
1. An activity measure is an allocation base in an activity-based costing system that uses a cost driver in an activity cost pool. A cost driver is an activity that drives the cost being allocated. The number of donated books being processed would be considered a cost driver as well as an activity measure. When it comes to salary, the financial aid fund, and the costs associated with the facility, the number of donated books being processed is not a cost driver in this situation. The only cost driver associated with the donated books are the RFID tags considering these are the only costs with the books themselves.
2. Relevant Range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid. The relevant range consists of an upper bracket and lower bracket when looking at the activity. In the case of the number of donated books being processed, the relevant range is 400 to 1,200.
3. A) Costs of library’s books donations department
Librarian head salary - $48,000
Librarian graduate assistant - $5,200
General Facilities - $1,200
RFID tag cost($0.50) – 1000 books at $500
1. 1200 books at $600 B) Variable Costs
RFID tag cost $0.50 Fixed Costs
Librarian head salary $48,000
Librarian graduate assistant - $5,200
General Facilities - $1,200 If the activity moved outside of the relevant range the cost for additional student help is a variable cost. The RFID tag cost will also remain a variable cost if it still is consistent with volume. The librarians salary is still associated as a fixed cost and the variable cost per unit book is subject to change in the event of increased purchases. C) Direct cost – cost that can be easily and conveniently traced to a specified cost object. Indirect Cost – cost that cannot be easily and conveniently traced to a specified cost object. Direct costs of the department include the RFID tag costs
1. An activity measure is an allocation base in an activity-based costing system that uses a cost driver in an activity cost pool. A cost driver is an activity that drives the cost being allocated. The number of donated books being processed would be considered a cost driver as well as an activity measure. When it comes to salary, the financial aid fund, and the costs associated with the facility, the number of donated books being processed is not a cost driver in this situation. The only cost driver associated with the donated books are the RFID tags considering these are the only costs with the books themselves.
2. Relevant Range is the range of activity within which the assumption that cost behavior is strictly linear is reasonably valid. The relevant range consists of an upper bracket and lower bracket when looking at the activity. In the case of the number of donated books being processed, the relevant range is 400 to 1,200.
3. A) Costs of library’s books donations department
Librarian head salary - $48,000
Librarian graduate assistant - $5,200
General Facilities - $1,200
RFID tag cost($0.50) – 1000 books at $500
1. 1200 books at $600 B) Variable Costs
RFID tag cost $0.50 Fixed Costs
Librarian head salary $48,000
Librarian graduate assistant - $5,200
General Facilities - $1,200 If the activity moved outside of the relevant range the cost for additional student help is a variable cost. The RFID tag cost will also remain a variable cost if it still is consistent with volume. The librarians salary is still associated as a fixed cost and the variable cost per unit book is subject to change in the event of increased purchases. C) Direct cost – cost that can be easily and conveniently traced to a specified cost object. Indirect Cost – cost that cannot be easily and conveniently traced to a specified cost object. Direct costs of the department include the RFID tag costs