Question 1 - Cost Allocation Process
Apex Company's Copy Department, which does all of the photocopying for the Sales Department and the Administration Department, budgets the following costs for the year, based on the expected activity indicated:
Expected copies for the year - 5,000,000
Budgeted annual costs:
Salaries (fixed) - $100,000
Employee benefits (fixed) - 12,500
Depreciation of copy machines (fixed) - 10,000
Utilities (fixed) - 5,000
Paper (variable) - 50,000
Toner (variable) - 50,000
Budgeted paper cost per copy - $0.01
Budgeted toner cost per copy - $0.01
The costs are assigned to two pools, one for fixed and one for variable costs. The costs are then assigned to the Sales Department and the Administrative Department. Fixed costs are assigned on a lump-sum basis, as follows:
Fixed costs to Sales - 40%
Fixed costs to Administration - 60%
The variable costs are assigned at the following:
Variable costs per copy - $0.02
The number of copies made during the year are:
Total copies made - 4,800,000
Copies made for Sales - 2,500,000
Copies made for Administration - 2,300,000
Required - Calculate the Copy Department costs allocated to Sales and Administration.
Question 2 - Cost Allocation Process
Marvin Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Marvin's allocation of service department costs:
|
Budgeted Costs
|
Number of Employees
|
|
S1
|
$4,500,000
|
90
|
|
S2
|
3,000,000
|
60
|
|
S3
|
2,700,000
|
40
|
|
P1
|
|
200
|
|
P2
|
|
300
|
Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs.
Required - Allocate service department costs to production departments.
Question 3 - Choice of Allocation Based, Problems with Cost Allocation
|
Financial Planning
|
Business Consulting
|
Total
|
|
Expected personnel costs
|
|
|
$1,500,000
|
|
Salaries
|
$15,000,000
|
$5,000,000
|
|
|
Headcount
|
200
|
50
|
|
Required -
a. Prepare a schedule showing the allocations to the two divisions using each allocation base.
b. Referring to your answer to a, explain why allocations are sometimes considered arbitrary.
Attachment:- Assignment.rar