Question :
161.Rickets Consulting has two divisions: Internal Audit and Management Services. : 1302776
161.Rickets Consulting has two divisions: Internal Audit and Management Services. The firm’s accountants are in the process of selecting an allocation base to allocate centrally provided personnel costs to the two departments. Two allocation bases have been proposed—dollars of salary and number of employees. Personnel costs are expected to be $2,500,000. The following data relate to the allocations:
Internal AuditManagement Services
Salaries in dollars $14,000,000 $18,000,000
Number of employees 150 50
Prepare a schedule showing the allocations to the two divisions using each allocation base.
Referring to your answer to part a, explain why allocations are sometimes considered arbitrary.
162.The personnel department at Dansford Company has $45,000 in budgeted costs for the coming period. Dansford is trying to determine whether to allocate these costs to the two production departments based on the number of employees or on machine hours used in the department. Information about the production departments is given below:
MoldingEngraving
Number of employees 15 35
Anticipated machine hours 600 400
Calculate the costs allocated to each of the production departments using each allocation base. Which allocation base is preferable?
163.The costs of the personnel department at Mama Maids total $37,800 annually. These costs are allocated based on the number of employees in the production departments using the direct method. If 12 of Mama Maids’ 36 employees work in the residential services department, what amount of the personnel department costs should be allocated to the residential services?
164.Sentry Company has three departments, Civil, Criminal, and Probate. Each department uses the services of the photocopying department. The photocopying department has 10 copiers, and each copier can produce 100,000 copies per month and has a fixed annual cost of $7,800. The variable cost to produce a copy is $0.031 per copy. During March, the Copying Department incurred $6,930 fixed and $23,870 in variable copying costs. Following is the three production departments’ monthly consumption information:
Peak DemandAverage DemandMarch Usage
Civil600,000 copies 300,000 copies 410,000 copies
Criminal200,000 copies 180,000 copies 190,000 copies
Probate200,000 copies 180,000 copies 170,000 copies
a.Describe three alternative ways that the production departments can be charged for services.
b.Assign the actual cost of March copying to the production departments based on the actual copies used by each department. What is the cost per copy? (Round cost per copy to two decimal places and charges to departments to nearest whole dollar.)
c.Assign the cost of March copying to the production departments, where the budgeted fixed cost is based on peak usage requirements, and the budgeted variable cost is based on actual usage. What is the total cost per copy assigned to each department?
d.Which way do you believe is more equitable? Why?
