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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?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
Section: Chapter Questions
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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?
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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