Fundamentals of Cost Accounting
6th Edition
ISBN: 9781260708783
Author: LANEN, William
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 12, Problem 40E
Alternative Allocation Bases
Thompson Aeronautics repairs aircraft engines. The company’s Purchasing Department supports its two departments, Defense and Commercial. The Defense division has contracts with the Department of Defense and the Commercial division works primarily with domestic airlines and air freight companies. The cost of the Purchasing Department is $6 million annually.
Information on the activity of the Purchasing Department for the last year follows:
Required
- a. What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the number of purchase orders?
- b. What is the cost charged to each division if Thompson allocates Purchasing Department costs based on the dollar amount of the purchases?
- c. Contracts with the Defense Department are on a cost-plus fixed fee basis, meaning the price is based on the cost of repairing an engine, including any
overhead assigned to the division. Contracts with commercial airlines and air freight companies are almost all fixed price, meaning the price does not depend directly on the cost. Will this affect Thompson’s choice of an allocation base? Should it?
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Students have asked these similar questions
Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs of the company's computer server network. The annual common costs are $2,860,000. You have been provided with the following information for the upcoming year:
Connections
Time on Network (hours)
Commercial
51,000
121,000
Retail
61,000
151,000
Consumer
108,000
378,000
What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate method and allocates common costs based on the time on the network?
Multiple Choice
$4.40.
$3.29.
$23.64.
$19.36.
The cost of operating the Maintenance Department is to be allocated to four production departments based on the floor space each occupies. Department A occupies 600 m²;
Department B, 900 m²; Department C, 1200 m²; and Department D, 600 m². If the July cost was $17,600, how much of the cost of operating the Maintenance Department should be
allocated to each production department?
The operating cost for Department A is $
(Simplify your answer.)
The operating cost for Department B is $
(Simplify your answer.)
The operating cost for Department C is $
(Simplify your answer.)
The operating cost for Department D is $
(Simplify your answer.)
Calculating and Using a Single Charging Rate
The expected costs for the Maintenance Department of Stazler, Inc., for the coming year include:
Fixed costs (salaries, tools): $72,930 per year
Variable costs (supplies): $1.30 per maintenance hour
Estimated usage by:
Assembly Department
4,900
Fabricating Department
6,200
Packaging Department
11.000
Total maintenance hours
22,100
Actual usage by:
Assembly Department
3,425
Fabricating Department
6,300
Packaging Department
10,200
Total maintenance hours
19,925
Required:
1. Calculate a single charging rate for the Maintenance Department. Round your answer to the nearest cent.
per maintenance hour
2. Use this rate to assign the costs of the Maintenance Department to the user departments based on actual usage. Calculate the total amount charged for maintenance for the year.
3. What if the Assembly Department used 4,000 maintenance hours in the year? How much would have been charged out to the three departments? when required, round your answers…
Chapter 12 Solutions
Fundamentals of Cost Accounting
Ch. 12 - What does decentralization mean in the context of...Ch. 12 - Why is performance measurement an important...Ch. 12 - Prob. 3RQCh. 12 - What does dysfunctional decision making refer to?Ch. 12 - Prob. 5RQCh. 12 - What are the five basic kinds of decentralized...Ch. 12 - What is goal congruence? How is it different from...Ch. 12 - Prob. 8RQCh. 12 - What is relative performance evaluation?Ch. 12 - Prob. 10RQ
Ch. 12 - Prob. 11RQCh. 12 - Prob. 12RQCh. 12 - The management control system collects information...Ch. 12 - Salespeople are often paid a commission based on...Ch. 12 - Prob. 15CADQCh. 12 - Prob. 16CADQCh. 12 - On December 30, a manager determines that income...Ch. 12 - Prob. 18CADQCh. 12 - Prob. 19CADQCh. 12 - The manager of an operating department just...Ch. 12 - In the previous chapters, we considered different...Ch. 12 - A company has a bonus plan that states that...Ch. 12 - Prob. 23CADQCh. 12 - Prob. 24CADQCh. 12 - Prob. 25CADQCh. 12 - Prob. 26CADQCh. 12 - Prob. 27CADQCh. 12 - Prob. 28CADQCh. 12 - Prob. 29ECh. 12 - Evaluating Management Control SystemsEthical...Ch. 12 - Prob. 31ECh. 12 - Management Control Systems and Incentives A...Ch. 12 - Prob. 33ECh. 12 - Prob. 34ECh. 12 - Prob. 35ECh. 12 - Alternative Allocation Bases: Service Bartolo...Ch. 12 - Prob. 37ECh. 12 - Single versus Dual Rates: Ethical Considerations A...Ch. 12 - Single versus Dual Rates
Using the data for the...Ch. 12 - Alternative Allocation Bases Thompson Aeronautics...Ch. 12 - Tone at the Top, Ethics Once upon a time, a major...Ch. 12 - Prob. 42ECh. 12 - Prob. 43ECh. 12 - Internal Controls Commonly in many organizations,...Ch. 12 - Evaluating Management Control Systems SPG Company...Ch. 12 - Analyze Performance Report for Decentralized...Ch. 12 - Divisional Performance Measurement: Behavioral...Ch. 12 - Prob. 48PCh. 12 - Prob. 49PCh. 12 - Cost Allocations: Comparison of Dual and Single...Ch. 12 - Cost Allocation for Travel Reimbursement Your...Ch. 12 - Incentives, Illegal Activities, and Ethics An...
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