Puget Concrete is a major west coast supplier of concrete to residential and commercial builders with multiple sites in the Puget Sound area. Concrete is sold (priced) by the cubic yard including costs based on number of cubic tards, delivery costs based on miles driven, and number of truck-hours while at the job site. The company's pricing policy is to price orders for concrete at 25% over full cost per cubic yard for the order. Full cost includes variable costs for concrete, delivery and yard operations plus an allocation for the estimated annual fixed costs of delivery, site operations and administrative costs (see 2017 cost estimates below).
	Delivery costs include a rate per mile, recognizing that more miles means more gas and maintenance costs, plus a rate per truck-hour (hours on the job) since if kept waiting on a job site the truck must be kept running so the concrete will not harden and the driver must be paid for that time. Site operations is the name for the company's place where the concrete is prepared and loaded in the truck for delivery.
	The price per cubic foot quoted the customer is based on full cost for the job plus 25% divided by number of cubic yards for the order as follows:
	Jobs (orders) are priced as follows (using cost plus method):
	Number of yards x Concrete cost/yard*	* need to compute cost per yard based on cost data below
	Number of Miles driven x $10 per mile	using the planned miles for that order
	Number of Truck hours x $50 per hour	using the planned hours for that order
	Total Job Cost
	plus Markup (job cost x 25%)
	Total Price for the order
	Total price divided by number of cu yds ordered is the quoted price per cu yd (includes delivery)
	At the start of 2017, the company estimated their costs as follows:
	Costs included in concrete cost/yard:
	Direct Material cost = $75 per cubic yard
	Variable site operations costs = $17 per cubic yard
	Fixed site operations costs = $300,000 per year
	Fixed Delivery costs = $500,000 per year
	Fixed Admin. costs = $2,125,000 per year
	Costs included in delivery cost:
	Variable Delivery costs = $10 per mile + $50 per truck hour
	And estimated 2017 sales volume is as follows:
	Annual totals (planned):	2017 amount
	Total Cubic Yds to be delivered (sold)	500,000
	Total Delivery Miles	700,000
	Total Truck-hours	25,000
	Total number of jobs (orders)	100

Q3	Puget has multiple operating sites but does not perform cost or profit analysis by site. The CFO suggests a report be developed based on a breakout of the North and South Puget Sound yard locations. Two overhead allocation methods are under review using prior year data for analysis:
	Overhead costs	Annual Amount
	Employee Benefits	$1,700,000
	Rent & Utilities	$500,000
	Other Ops overhead	$1,800,000
	Total OH	$4,000,000
	Site information:	North	South
	Sales	$20,000,000	$47,000,000
	Number of employees	20	35
	Site Building Size	6,000 sq ft.	6,000 sq ft.
	Required: Prepare an overhead allocation report for North and South sites using (Method 1) Sales $ to allocate total OH between the two, and (Method 2) # employees for Employee Benefits, Building space used for rent & utilities, and Sales $ for Other Ops Overhead costs. Show the difference in results and explain which method you recommend and why.

Answer rating: 100% (QA)

3 Method 1 Method 2 Difference in results The above table ... View the full answer