Sharp Motor Company has two operating divisionsâan Auto Divisionand a Truck Division. The company has a cafeteria that serves theemployees of both divisions. The costs of operating the cafeteriaare budgeted at $77,000 per month plus $0.60 per meal served. Thecompany pays all the cost of the meals.
The fixed costs ofthe cafeteria are determined by peak-period requirements. The AutoDivision is responsible for 71% of the peak-period requirements,and the Truck Division is responsible for the other 29%.
For June, theAuto Division estimated that it would need 86,000 meals served, andthe Truck Division estimated that it would need 56,000 mealsserved. However, due to unexpected layoffs of employees during themonth, only 56,000 meals were served to the Auto Division. Another56,000 meals were served to the Truck Division as planned.
Cost records inthe cafeteria show that actual fixed costs for June totaled $86,000and that actual meal costs totaled $82,200.
Required: 1. How much cafeteria cost should be charged to each division forJune?
2. Assume that the company follows the practice of allocating allcafeteria costs incurred each month to the divisions in proportionto the number of meals served to each division during the month. Onthis basis, how much cost would be allocated to each division forJune? (Round your intermediate calculations to two decimalplaces.)
3. Whether allocation method usedin part (2) above has problems? Yes No
Sharp Motor Company has two operating divisionsâan Auto Divisionand a Truck Division. The company has a cafeteria that serves theemployees of both divisions. The costs of operating the cafeteriaare budgeted at $77,000 per month plus $0.60 per meal served. Thecompany pays all the cost of the meals. |
| The fixed costs ofthe cafeteria are determined by peak-period requirements. The AutoDivision is responsible for 71% of the peak-period requirements,and the Truck Division is responsible for the other 29%. |
For June, theAuto Division estimated that it would need 86,000 meals served, andthe Truck Division estimated that it would need 56,000 mealsserved. However, due to unexpected layoffs of employees during themonth, only 56,000 meals were served to the Auto Division. Another56,000 meals were served to the Truck Division as planned. |
Cost records inthe cafeteria show that actual fixed costs for June totaled $86,000and that actual meal costs totaled $82,200. |
| Required: | |
| 1. | How much cafeteria cost should be charged to each division forJune? |
| 2. | Assume that the company follows the practice of allocating allcafeteria costs incurred each month to the divisions in proportionto the number of meals served to each division during the month. Onthis basis, how much cost would be allocated to each division forJune? (Round your intermediate calculations to two decimalplaces.) |
| 3. | Whether allocation method usedin part (2) above has problems? | ||||
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Related questions
Northstar Company has two operating divisionsâMachine Tools andSpecial Products. The company has a maintenance department thatservices the equipment in both divisions. The costs of operatingthe maintenance department are budgeted at $83,000 per month plus$0.6 per machine hour. The fixed costs of the maintenancedepartment are determined by peak-period requirements. The MachineTools Division requires 60% of the peak-period capacity, and theSpecial Products Division requires 40%. |
For October, theMachine Tools Division estimated that it would operate at 82,000machine hours of activity and the Special Products Divisionestimated that it would operate at 52,000 machine-hours ofactivity. However, due to labor unrest and an unexpected strike,the Machine Tools Division worked only 52,000 machine-hours duringthe month. The Special Products Division worked 52,000machine-hours as planned. |
Cost records inthe maintenance department show that actual fixed costs for Octobertotaled $86,000 and that actual variable costs totaled $79,400. |
| Required: | |
| 1. | How much maintenance department cost should be charged to eachdivision for October? (Omit the "$" sign in yourresponse.) |
| Machine Tools Division | SpecialProducts Division | |
| Total costallocated | $ | $ |
| 2. | Assume that the company follows the practice of allocating allmaintenance department costs incurred each month to the divisionsin proportion to the actual machine-hours recorded in each divisionfor the month. On this basis, how much cost would be allocated toeach division for October? (Omit the "$" sign in yourresponse.) |
| Machine Tools Division | Special Products Division | |
| Total costallocated | $ | $ |
| 3. | Whether allocation method usedin part (2) above has problems? | ||||
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