Problem 7.33 (Algorithmic) Allocation: Fixed and Variable Costs, Budgeted Fixed and Variable Costs

Biotechtron, Inc., has two research laboratories in the Southwest, one in Yuma, Arizona, and the other in Bernalillo, New Mexico. The owner of Biotechtron centralized the legal services function in the Yuma office and had both laboratories send any legal questions or issues to the Yuma office. The legal services support center has budgeted fixed costs of $166,000 per year and a budgeted variable rate of $66 per hour of professional time. The normal usage of the legal services center is 2,880 hours per year for the Yuma office and 1,920 hours per year for the Bernalillo office. This corresponds to the expected usage for the coming year.

Required:

1. Determine the amount of legal services support center costs that should be assigned to each office. In your computations, carry ratio values out to two decimal places. Round your final answers to the nearest dollar if rounding is required.

Yuma	$
Bernalillo	$

2. Since the offices produce services, not tangible products, what purpose is served by allocating the budgeted costs?

- Select your answer -It allows service department costs to be applied to the ending inventories and to the cost of goods sold.It serves the same purposes as costing out tangible products (e.g., pricing, profitability analysis, and performance evaluation). It serves no purpose since service department costs are not product costs and are not applied to inventories the cost of goods sold.Item 3

3. Now, assume that during the year, the legal services center incurred actual fixed costs of $169,100 and actual variable costs of $273,220. It delivered 4,120 hours of professional time2,730 hours to Yuma and 1,390 hours to Bernalillo.

Determine the amount of the legal services center's costs that should be allocated to each office.

Yuma	$
Bernalillo	$

4. Did the costs allocated differ from the costs incurred by the legal services center? - Select your answer -YesNoItem 6

If so, why? - Select your answer -No reason, as there was no changeBecause initial budget assumptions were incorrectBecause both labs operated inefficientlyBecause the labs were charged based on budgeted costsBecause the unit variable costs changedItem 7