The only choices that a firm has for support department cost allocation rates are to use either
Question:
The only choices that a firm has for support department cost allocation rates are to use either a budgeted rate or an actual rate.
The most common method to allocate support department costs is to employ actual rates based on the costs realized during the period.Blaster Drive-In is a fast-food restaurant that sells burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company:
Burgers Hot Dogs
Sales for January4,0002,400
Sales for February6,4002,400
Required:
a.What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February?
b.Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations.
14) Marvelous Motors is a small motor supply outlet that sells motors to companies that make various small motorized appliances. The fixed operating costs of the company are $300,000 per year. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to the motors and wants to review the company status on a quarterly basis. The shareholder is trying to determine whether the costs should be allocated each quarter based on the 25% of the annual fixed operating costs ($75,000) or by using an annual forecast budget to allocate the costs. The following information is provided for the operations of the company:
Forecast Actual
Sales for First Quarter5,0004,850
Sales for Second Quarter 8,0007,900
Sales for Third Quarter8,0008,125
Sales for Fourth Quarter3,0003,125
Required:
a. What amount of fixed operating costs are assigned to each motor by quarter when actual sales are used as the allocation base and $75,000 is allocated?
b. How much fixed cost is recovered each quarter under requirement a.?
c. What amount of fixed operating costs are assigned to each motor by quarter when forecast sales are used as the allocation base and the rate is calculated annually as part of the budgetary process?
d. How much fixed cost is recovered each quarter under requirement c.?
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton