Question
Exploding Diapers,Inc is a daycare company in NYC.The company has expanded and now has 3centers.Center 1's Income Statement showed the following: Revenue $240,000 Direct Expenses
Exploding Diapers,Inc is a daycare company in NYC.The company has expanded and now has 3centers.Center 1's Income Statement showed the following:
Revenue $240,000
Direct Expenses 195,200
OH 50,000
Operating Income (Loss) $(5,200)
The company's overhead for the year included the salary of the owner,Jihyo($90,000), and advertising ($60,000), and was allocated using a peanut-butter spread across all 3centers so that each was allocated $50,000.
Jihyospends her time overseeing the operations of all three centers and handling all paperwork (e.g., billing), and wants to reallocate the existing overhead costs to centers using recently collected information with respect to key activities and activity cost drivers. The estimated activity-based cost and driver data, which in the future will be collected automatically via a new software package using a commercially available product tailored to daycare providers, is presented below:
Overhead Activity Cost Pools | Total Activity Costs | Allocation base |
Account Maintenance (e.g., billing) | $36,000 | Number of preschool children |
Meeting with parents | 18,000 | Number of parent meetings |
Facilities maintenance (calling repairmen, etc.) | 22,500 | Maintenance costs |
Overseeing operations | 13,500 | Spread evenly across centers |
Gretchen's total salary | $90,000 | |
Advertising | 60,000 | Number of advertising promotions |
Activity Consumption by Center | Center 1 | Center 2 | Center 3 | Estimated Activity Total | Estimated Practical Capacity |
Number of preschool children | 48 | 60 | 90 | 198 | 225 |
Number of parent meetings | 48 | 60 | 350 | 458 | 480 |
Maintenance costs | 5,000 | 4,000 | 2,000 | 11,000 | 11,250 |
Number of advertising promotions | 6 | 6 | 20 | 32 | 32 |
Compute the revised operating income for Center 1 using "best practices" under the activity-based-costing method proposed by Jihyo. (ROUND to 2 decimal places in all calculations and enter your answer rounded to the nearest dollar. For example, if you believe the answer is "$25,347.69", enter "$25,348".)
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