The only choices that a firm has for support department cost allocation rates are to use either a budgeted rate or an actual rate. 

  The most common method to allocate support department costs is to employ actual rates based on the costs realized during the period.  

Blaster Drive-In is a fast-food restaurant that sells burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company: 

 

 

 

 Burgers Hot Dogs 

 

 Sales for January4,0002,400 

 

 Sales for February6,4002,400 

 

 

 

 Required: 

 

 a.What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February? 

 

 b.Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations. 

 

 14) Marvelous Motors is a small motor supply outlet that sells motors to companies that make various small motorized appliances. The fixed operating costs of the company are $300,000 per year. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to the motors and wants to review the company status on a quarterly basis. The shareholder is trying to determine whether the costs should be allocated each quarter based on the 25% of the annual fixed operating costs ($75,000) or by using an annual forecast budget to allocate the costs. The following information is provided for the operations of the company: 

 

 

 

 Forecast Actual 

 

 Sales for First Quarter5,0004,850 

 

 Sales for Second Quarter 8,0007,900 

 

 Sales for Third Quarter8,0008,125 

 

 Sales for Fourth Quarter3,0003,125 

 

 Required: 

 

 a. What amount of fixed operating costs are assigned to each motor by quarter when actual sales are used as the allocation base and $75,000 is allocated? 

 

 b. How much fixed cost is recovered each quarter under requirement a.? 

 

 c. What amount of fixed operating costs are assigned to each motor by quarter when forecast sales are used as the allocation base and the rate is calculated annually as part of the budgetary process? 

 

 d. How much fixed cost is recovered each quarter under requirement c.? 

  

Answer rating: 100% (QA)

a For Blaster DriveIn In January the total sales were 4000 for burgers and 2400 for hot dogs The tot... View the full answer