{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Determine how much of the 148000 in variable cost

Info iconThis preview shows pages 6–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Determine how much of the $148,000 in variable cost should be charged to each refinery. Determine how much of the $217,000 in fixed cost should be charged to each refinery. Budgeted variable ( $.30 /gallon)
Background image of page 6

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Exercise 11B-2 Sales Dollars as an Allocation Base for Fixed Costs Given: Lacey's Department Store allocates its fixed administrative expenses to its four operating departments on the basis of sales dollars. During 2009, the fixed administrative expenses Men's Women's Shoes Housewares Total Total sales -- 2009 $600,000 $1,500,000 $2,100,000 $1,800,000 $6,000,000 Percentage of total sales 10% 25% 35% 30% 100% $90,000 $225,000 $315,000 $270,000 $900,000 During 2010, the following year, the Women's Department doubled its sales. The sales levels in the other three departments remained unchanged. The company's 2010 sales data were as follows: Men's Women's Shoes Housewares Total Total sales -- 2010 $600,000 $3,000,000 $2,100,000 $1,800,000 $7,500,000 Percentage of total sales 8% 40% 28% 24% 100% $900,000 Required: 1. Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the four departments for 2010. Men's Women's Shoes Housewares Total Allocation for 2010 $72,000 $360,000 $252,000 $216,000 $900,000 2. Compare your allocation from (1) above to the allocation for 2009. As the manager of the Women's Department, how would you feel about the administrative expenses that have been charged to you you for 2010? Men's Women's Shoes Housewares Total Allocation for 2010 $72,000 $360,000 $252,000 $216,000 $900,000 Allocation for 2009 $90,000 $225,000 $315,000 $270,000 $900,000 Increase/Decrease ($18,000) $135,000 ($63,000) ($54,000) $0 The manager of the Women's Department undoubtedly will be upset about the increased allocation to the department but will feel powerless to do anything about it. Such an increased allocation may be viewed as a penalty for an outstanding performance. Note: The allocations to all of the other departments decreased. 3. Comment on the usefulness of sales dollars as an allocation base. Sales dollars is not ordinarily a good base for allocating fixed costs. The costs allocated to a department will be affected by the sales in other departments. In other words, how much fixed costs will be allocated to one department depends on the operations of another department. Note that if the department managers have bonus plans based on NOI, these managers will receive bonus increases because of the increased sales in the Women's Department. totaled $900,000 . These expenses were allocated as follows: Allocation (based on the above percentages) Fixed administrative expenses remained unchanged at $900,000 during 2010.
Background image of page 7
Problem 11A-5 Basic Transfer Pricing Given: In cases 1-4 below, assume that Division A has a product that can be sold either to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own division's ROI. The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Treat each case independently.
Background image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}