17) Hunt Company and Indio Company are noncompeting lines of business and use a common database for...

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17) Hunt Company and Indio Company are noncompeting lines of business and use a common database for marketing purposes. The variable costs associated with accessing the database are readily identifiable and kept in separate cost pools that are charged to each user. The fixed costs of maintaining the database, however, cannot be identified by user on a cause-and-effect basis. These fixed costs for the next year are budgeted at $55,000. If Hunt does not use the database, the fixed costs to Indio are $48,000. An outside vendor offers to provide Hunt access to a comparable database for a fixed fee fo $60,000 per year plus variable costs of accessing the database. The same vendor offers to provide Indio access to that database for a fixed fee of $20,000 per year plus variable costs of accessing the database.

18) The maintenance department has been servicing the production of gizmos manufacturing for three years. During this time its costs have varied very little. Beginning next year the company is adding a scrap recycling department to recycle the scrap materials from widget processing. It is anticipated that the maintenance department's cost will increase from $960,000 to $1,000,000. The recycling department will utilize 20 percent of the maintenance efforts.

Required:

a.Calculate the allocation of the maintenance costs to gizmos and recycling if the incremental allocation method is used.

b.Calculate the allocation of the maintenance costs to gizmos and recycling if the stand-alone allocation method is used.

19) John Ebert, a graduating student at a university in Calgary, received an invitation to visit a prospective employer in Halifax. A few days later, he received an invitation from a prospective employer in Toronto. He decided to combine his visits, travelling from Calgary to Halifax, Halifax to Toronto, and Toronto to Calgary.

Ebert received job offers from both companies. On his return, he decided to accept the offer in Toronto. He was puzzled as to how to allocate his travel costs between the two employers. He gathered the following data:

Regular Round-Trip Fares with No Stopovers

Calgary to Halifax$1,500

Calgary to Toronto$1,200

Ebert paid $1,900 for his three-leg flight (Calgary to Halifax, Halifax to Toronto, Toronto to Calgary). In addition, he paid $30 for a limousine from his home to Calgary Airport and another $30 for a limousine from Calgary Airport to his home when he returned.

Required:

a.Allocate the $1,900 airfare between the employers in Halifax and Toronto using both the stand-alone and incremental methods?

b.How would you allocate the $60 limousine fare?

20) John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract. What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?