Welcome Inns is a chain of motels serving business travelers in New Mexico and southwest Texas. The
Question:
The Accounting Department has budgeted fixed costs of $135,000 per year. Variable costs are budgeted at $20 per hour. In 2014, actual cost for the Accounting Department was $223,000. Further information is as follows:
Required:
1. Suppose the total actual costs of the Accounting Department are allocated on the basis of 2014 sales revenue. How much will be allocated to each motel?
2. Suppose that Welcome Inns views 2013 sales figures as a proxy for budgeted capacity of the motels. Thus, fixed Accounting Department costs are allocated on the basis of 2013 sales, and variable costs are allocated according to 2014 usage multiplied by the variable rate. How much Accounting Department cost will be allocated to each motel?
3. Comment on the two allocation schemes. Which motels would prefer the method in Requirement 1? The method in Requirement 2? Explain.
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Related Book For
Cornerstones of Cost Management
ISBN: 978-1111824402
2nd edition
Authors: Don R. Hansen, Maryanne M. Mowen
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