. Maintenance costs at Winter Company are allocated to the production department
ID: 2347816 • Letter: #
Question
. Maintenance costs at Winter Company are allocated to the production departments based on area occupied. Maintenance costs of $300,000 are budgeted to maintain a 60,000 square foot production area. If the finishing department occupies 25,000 square feet, how much of the maintenance department costs will be allocated to the finishing department?$125,000
$175,000
$100,000
$5,000
6. Ring Company allocates the net cost of the company cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 25; polishing, 35; engraving, 30; and packaging, 10. There are 5 employees in the cafeteria. The cafeteria’s net costs total $130,100.
What amounts will be allocated to the packaging department?
$1,301
$12,390
$13,010
$26,020
AE4-12
CVP Analysis, Profit Equation [LO 3]
Clyde's Marina has estimated that fixed costs per month are $305,880 and variable cost per dollar of sales is $0.40.
What level of sales dollars is needed for a monthly profit of $59,700?
$ ________________
Explanation / Answer
First problem: budgeted cost times finishing square feet divided by total square feet will give you costs alloated to the finishing department on the basis of square feet:
300,000*(25,000/60,000) = 125,000
Number 6: Total number of employees in production departments: 25+35+30+10 = 100
costs times number of packaging employees divided by total number of production employees will give you allocaed costs to the packaging department based on number of employees:
131,100*10/100 = 13,110
Last problem:
If variable cost per dollar of sales is 0.40, then contribution margin per dollar of sales is 0.60.
Add profit and fixed costs to find the contribution margin necessary for that level of profit:
59,700 + 305,880 = 365,580.
Next, divide that contribution margin by the contribution margin per dollar of sales to find the level of sales dollars necessary for that level of profit:
365,580/0.6 = 609,300.
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