Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500

Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 6E: Varney Corporation, a manufacturer of electronics and communications systems, allocates Computing...

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Suppose the Reidland CEO decides to use direct costs as the allocation base. Should the Brothers division be closed? Why or why not?

Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune,
Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs
costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently
allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division
manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment
margin, direct costs, and number of employees. The following is relevant information about each division:
Acme
Dune
Stark
Brothers
$16,500,000
13,800,000
$ 2,700,000
1,500
Revenues
$23,400,000 $25,500,000 $18,600,000
12,300,000
$13,200,000
12,000
Direct costs
Segment margin
Number of employees
15,900,000
$ 7,500,000
6,000
12,900,000
$ 5,700,000
4,500

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Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division:
Which allocation base do you think the manager of the Brothers division would prefer? Explain
Allocate the indirect headquarters costs of Reidland Manufacturing to each of the four divisions using revenues, direct costs, segment margin, and number of employees as the allocation bases. Calculate operating margins for each division after allocating headquarters costs.
How much of the accounting department cost will be allocated?
Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost Administrative service % of time devoted to branch $ 1,680,000 Development service Computer time $ 630,000 Estimated branch data for next year is as follows: Time to branch Computer time Nashville 70 % 1,600,000 minutes Atlanta 20 % 1,200,000 minutes Louisville 10 % 400,000 minutes Total 100 % 3,200,000 minutes How much of the headquarters cost allocation should Nashville expect to receive next year?
Which method would you recommend that Ballantine Corporation use to allocate service-department costs? Why?
Miracle Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost General service % of time devoted to branch $ 700,000 Research service Computer time $ 140,000 Estimated branch data for next year is as follows: % of time Computer time Portland 30 % 200,000 minutes Dallas 60 % 150,000 minutes Miami 10 % 50,000 minutes How much of the headquarters cost allocation should the Dallas office expect to receive next year? Multiple Choice $409,500. $472,500. $504,000. $280,000.