CRANE CORP. has a centralized employee travel department which handles travel arrangements for the East, Central...

 

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CRANE CORP. has a centralized employee travel department which handles travel arrangements for the East, Central and West divisions of the company. Budgeted annual costs for operating the travel department (NOT including the costs of the transportation, rooms, etc.) are $225,000. These are just the costs of running the department, NOT the travel costs themselves 1. Is there an allocation needed in this situation? WHY? 2. Why do the costs of centralized service departments need to be allocated? List and explain at least two reasons. 3. What are the cost objects in this situation? 4. What is the cost pool? 5. Suggest some alternative bases for allocating (charging) the service department costs generated by the employee travel department. 6. What are the important factors that must be considered in determining the basis upon which to allocate these costs? 7. Which allocation base is preferable and WHY? 8. Assume that CRANE has chosen to allocate the travel department costs on the basis of the number of reservations made. On a preliminary basis, 900 reservations were estimated for 2022. The following actual numbers of reservations were made: East 200 res. Central 450 res. 11. West 150 res. 9. What is the charge rate for the employee travel department? 10. The charge rates were determined based on an estimate of 900 reservations, yet only 800 were actually made. Reason for concern? WHY or WHY NOT? How much will each division be charged for evaluation purposes: a. East b. Central c. West 12. Other than the fact that the actual costs are not available until the end of the period, why is the REAL REASON the company used BUDGETED AMOUNTS for allocating the costs of the travel department rather than actual amounts? CRANE CORP. has a centralized employee travel department which handles travel arrangements for the East, Central and West divisions of the company. Budgeted annual costs for operating the travel department (NOT including the costs of the transportation, rooms, etc.) are $225,000. These are just the costs of running the department, NOT the travel costs themselves 1. Is there an allocation needed in this situation? WHY? 2. Why do the costs of centralized service departments need to be allocated? List and explain at least two reasons. 3. What are the cost objects in this situation? 4. What is the cost pool? 5. Suggest some alternative bases for allocating (charging) the service department costs generated by the employee travel department. 6. What are the important factors that must be considered in determining the basis upon which to allocate these costs? 7. Which allocation base is preferable and WHY? 8. Assume that CRANE has chosen to allocate the travel department costs on the basis of the number of reservations made. On a preliminary basis, 900 reservations were estimated for 2022. The following actual numbers of reservations were made: East 200 res. Central 450 res. 11. West 150 res. 9. What is the charge rate for the employee travel department? 10. The charge rates were determined based on an estimate of 900 reservations, yet only 800 were actually made. Reason for concern? WHY or WHY NOT? How much will each division be charged for evaluation purposes: a. East b. Central c. West 12. Other than the fact that the actual costs are not available until the end of the period, why is the REAL REASON the company used BUDGETED AMOUNTS for allocating the costs of the travel department rather than actual amounts?

Answer rating: 100% (QA)

1 Yes there is an allocation needed in this situation The reason for allocation is to distribute the costs of running the centralized employee travel department to the different divisions of the compa... View the full answer