Exercise 12-41 (Algo) Alternative Allocation Bases (LO 12-5) Dill Shipyards operates a dry dock on the East Coast, where it builds and repairs ships. The company's Payroll Department supports its two divisions, Naval and Private. The Naval division has contracts with the Department of Defense and the Private division works primarily with commercial shippers, specializing in tankers. The annual cost of the Payroll Department is $10.0 million. Selected data for the two divisions for the most recent year follow: Naval Private Number of Employees 17,220 23,780 Total Payroll ($000) $ 621,600 488,400 Required: a. What is the cost charged to each division if Dill allocates Payroll Department costs based on the number of employees? b. What is the cost charged to each division if Dill allocates Payroll Department costs based on the total payroll? c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing or building the ship, including any overhead assigned to the division. Contracts with commercial shipping companies are almost all fixed price, meaning the price does not depend directly on the cost. Will the allocation base selected affect the amount of revenue?
Exercise 12-41 (Algo) Alternative Allocation Bases (LO 12-5) Dill Shipyards operates a dry dock on the East Coast, where it builds and repairs ships. The company's Payroll Department supports its two divisions, Naval and Private. The Naval division has contracts with the Department of Defense and the Private division works primarily with commercial shippers, specializing in tankers. The annual cost of the Payroll Department is $10.0 million. Selected data for the two divisions for the most recent year follow: Naval Private Number of Employees 17,220 23,780 Total Payroll ($000) $ 621,600 488,400 Required: a. What is the cost charged to each division if Dill allocates Payroll Department costs based on the number of employees? b. What is the cost charged to each division if Dill allocates Payroll Department costs based on the total payroll? c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing or building the ship, including any overhead assigned to the division. Contracts with commercial shipping companies are almost all fixed price, meaning the price does not depend directly on the cost. Will the allocation base selected affect the amount of revenue?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Exercise 12-41 (Algo) Alternative Allocation Bases (LO 12-5)
Dill Shipyards operates a dry dock on the East Coast, where it builds and repairs ships. The company's Payroll Department supports its
two divisions, Naval and Private. The Naval division has contracts with the Department of Defense and the Private division works
primarily with commercial shippers, specializing in tankers. The annual cost of the Payroll Department is $10.0 million.
Selected data for the two divisions for the most recent year follow:
Naval
Private
Number of Total Payroll
Employees.
17,220
23,780
($000)
$ 621,600
488,400
Required:
a. What is the cost charged to each division if Dill allocates Payroll Department costs based on the number of employees?
b. What is the cost charged to each division if Dill allocates Payroll Department costs based on the total payroll?
c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing or
building the ship, including any overhead assigned to the division. Contracts with commercial shipping companies are almost all
fixed price, meaning the price does not depend directly on the cost. Will the allocation base selected affect the amount of revenue?
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