9-45. Activity-Based versus Traditional Costing—Ethical Issues Cathedral City Services (CCS) is a not-for-profit organization offering two services in a mid-sized city. The services are “Elder Meals” and “Jobs4U.” Elder Meals is a meals-on-wheels type program that delivers meals on a scheduled basis to seniors who are house-bound. Jobs4U is a jobs-training program focused on youth or adults who are looking to change careers. Participants in the program are sponsored by a local government agency, a charitable organization, or a local business. CCS charges a $240 fee per hour for each service. The revenues and costs for the year are shown in the following income statement: The following data have been collected concerning activities at CCS: Required Complete the income statement using activity-based costing and CCS’s three cost drivers. Recompute the income statement using direct labor-hours as the only allocation base (400 hours for Elder Meals; 1,000 hours for Jobs4U). How might CCS’s decisions regarding pricing or dropping a service be altered if the organization were to allocate all overhead costs using direct labor-hours? page 421Under what circumstances would the labor-based allocation and activity-based costing (using CCS’s three cost drivers) result in similar profit results? A regional government agency is looking for worthy causes to support through financial grants. A primary criterion for support is financial need. CCS is thinking of applying for support for the Elder Meals program. Which allocation method would give CCS the best chance of winning a grant? Would it be ethical for CCS to report the income using this method in their application?
9-45. Activity-Based versus Traditional Costing—Ethical Issues
Cathedral City Services (CCS) is a not-for-profit organization offering two services in a mid-sized city. The services are “Elder Meals” and “Jobs4U.” Elder Meals is a meals-on-wheels type program that delivers meals on a scheduled basis to seniors who are house-bound.
Jobs4U is a jobs-training program focused on youth or adults who are looking to change careers. Participants in the program are sponsored by a local government agency, a charitable organization, or a local business. CCS charges a $240 fee per hour for each service. The revenues and costs for the year are shown in the following income statement:
The following data have been collected concerning activities at CCS:
Required
Complete the income statement using activity-based costing and CCS’s three cost drivers.
Recompute the income statement using direct labor-hours as the only allocation base (400 hours for Elder Meals; 1,000 hours for Jobs4U).
How might CCS’s decisions regarding pricing or dropping a service be altered if the organization were to allocate all
page 421Under what circumstances would the labor-based allocation and activity-based costing (using CCS’s three cost drivers) result in similar profit results?
A regional government agency is looking for worthy causes to support through financial grants. A primary criterion for support is financial need. CCS is thinking of applying for support for the Elder Meals program. Which allocation method would give CCS the best chance of winning a grant? Would it be ethical for CCS to report the income using this method in their application?
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