Question : ESSAY. Write your answer in the space provided or a separate : 1196093

ESSAY.

Write your answer in the space provided or on a separate sheet of paper. 86)

A company might choose to allocate corporate costs to various divisions within the company for what

four purposes? Give an example of each.

87)

An electronics manufacturer is trying to encourage its engineers to design simpler products so that

overall costs are reduced.

Required:

Which of the value-chain function costs (R&D, design, production, marketing, distribution, customer service) should be included in product-cost estimates to achieve the above purpose? Why?

88)

Should a company allocate its corporate costs to divisions?

89)

The manager of the Finishing Department is concerned about how the costs of service departments are being assigned to the Mixing Department. He knows that his department uses support activities entirely different from the other production departments. As a matter of fact, when something goes wrong in the Mixing Department the entire plant has to stop production because of the critical nature of the chemical processing in that department. Several support departments, such as maintenance and clean-up stop whatever they are doing and come to help the Mixing Department. However, it appears that the Mixing Department is not assigned any additional support costs because all support costs are assigned on the basis of actual outputs.

Required:

Explain the methods available for the allocation of costs from one department to another. Which method would you recommend for this company and why?

90)

Van Meter Company has substantial fluctuations in its production costs because of the seasonality of figs. Most fig growers have two crops a year, one in June and one in August. However, the company has been importing figs from southern hemisphere countries, which extends the supply to the months of December and February.

Required:

What would you recommend as the monthly allocation base for the service departments of Van Meter Company? State your assumed cost object. A conceptual answer is required, not an example, such as cartons of figs.

91)

Brandy has been manager of the downtown branch of General Bank for several years. During this time she has received very good annual evaluations for her management of the branch. However, during the current year (it is now July) she has been upset with the monthly performance report generated by the budgeting department at the home office. Her branch has been making steady progress with controlled growth during the year and she knows of no reason why the report has such widely fluctuating variances. One item that she suspects is causing some of the problem is that most of the costs of the bank are fixed, with each branch getting an allocation of home office expenses each month. The bank also has some branches which are fast growing and some of which are having operating difficulties.

Required:

From the information presented, what do you suggest as a possible cause of the reporting problems?