Sharp Motor Company has two operating divisions—an Auto Division and a Truck Div

Question

Sharp Motor Company has two operating divisions—an Auto Division and a Truck Division. The company has a cafeteria that serves the employees of both divisions. The costs of operating the cafeteria are budgeted at $73,000 per month plus $0.70 per meal served. The company pays all the cost of the meals.

        The fixed costs of the cafeteria are determined by peak-period requirements. The Auto Division is responsible for 63% of the peak-period requirements, and the Truck Division is responsible for the other 37%.

        For June, the Auto Division estimated that it would need 88,000 meals served, and the Truck Division estimated that it would need 58,000 meals served. However, due to unexpected layoffs of employees during the month, only 58,000 meals were served to the Auto Division. Another 58,000 meals were served to the Truck Division as planned.

        Cost records in the cafeteria show that actual fixed costs for June totaled $80,000 and that actual meal costs totaled $100,200.

Explanation / Answer

1) Total cost charged to :

Auto Division = 73000*63% + 0.70*58000

Auto Division = $ 86590

Truck Division = 73000*37% + 0.70*58000

Truck Division = $ 67610

2)

Total Cost Allocated :

Auto Division = (80000+100200)/ (58000+58000) * 58000

Auto Division = $ 90100

Truck Division = (80000+100200)/ (58000+58000) * 58000

Truck Division = $ 90100

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