Problem 7.34 Direct Method, Variable versus Fixed Costing and Performance Evaluation Objective 2, 3 AirBorne is a small airline operating out of Boise, Idaho. Its three flights travel to Salt Lake City, Reno, and Portland. The owner of the airline wants to assess the full cost of operating each flight. As part of this assessment, the costs of two support departments (maintenance and baggage) must be allocated to the three flights. The two support departments that support all three flights are located in Boise (any maintenance or baggage costs at the destination airports are directly traceable to the individual flights). Budgeted and actual data for the year are as follows for the support departments and the three flights: Support Centers Maintenance Baggage Flights Reno Salt Lake City Portland $240,000 $ 30,000 $150,000 $ 64,000 $20,000 $5,000 2.000 $18,000 S10,000 4.000 15,000 $30.000 $ 6,000 2.000 5,000 10,000 Budgeted data: Fixed overhead Variable overhead Hours of flight time* Number of passengers Actual data: Fixed overhead Variable overhead Hours of flight time Number of passengers *Normal activity levels. $235.000 $ 80,000 $156,000 $ 33,000 $22,000 $ 6,200 1.800 8,000 $17.000 $11,000 4,200 16,000 $29,500 $ 5,800 2.500 6,000 Round all allocation ratios and variable rates to four significant digits. Round all allocated amounts to the nearest dollar. Required: 1. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to determine the cost of operating each flight. 2. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to evaluate performance. Do any costs remain in the two support departments after the allocation? If so, how much? Explain. 1. Allocation Ratios for Fixed Costs SLC Reno Portland Total Hours of flight time Percentage No. of passengers Percentage Maintenance Baggage Variable rates: Expected cost Activity level Allocation Based on Budgeted Activity SLC Reno Portland Maintenance-fixed: Cost: Percentage Maintenance-var.: Rate: Flight hrs. Baggagefixed: Cost: Percentage Baggage-var.: Rate: Passengers Totals 2. Reno Portland Allocation Based on Actual Activity SLC Maintenance-fixed: Cost: Percentage Maintenance-var.. Rate: Flight hrs. Baggagefixed: Cost: Percentage Baggage-var: Rate: Passengers Totals Do any costs remain in the two support departments? [Key essay answer here]