2 Problem 11B-4 Service Department Charges [LO11-6] 10 Sharp Motor Company has t

Question

2 Problem 11B-4 Service Department Charges [LO11-6] 10 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 $90,000 per month plus $0.50 per meal served. The company pays all the cost of the meals points The fixed costs of the cafeteria are determined by peak-period require ments. The Auto Division is responsible for 72% of the peak-period requirements, and the Truck Division is responsible for the other 28%. eBook For June, the Auto Division estimated it would need 90,000 meals served, and the Truck Division estimated it would need 60,000 meals served. However, due to unexpected layoffs of employees during the month, only 60,000 meals were served to the Auto Division. Another 60,000 meals were served to the Truck Division as planned Print Cost records in the cafeteria show that actual fixed costs for June totaled $95,000 and actual meal costs totaled Reference $73,000 Required 1. How much cafeteria cost should be charged to each division for June? 2. Assume the company follows the practice of allocating all cafeteria costs incurred each month to the divisions in proportion to the number of meals served to each division during the month. On this basis, how much cost would be allocated to each division for June? (Round your intermediate calculations to 2 decimal places.) Auto Truck Division Division Total cost charge Total cost allocated 2

Explanation / Answer

Total Cost Charged for each Divison 1 Particular Total Cost Basis Ratio Auto Division Truck Division Note Fixed Cost 95000 Peak Period Requirement 72:28 68400 26600 Fixed Cost cannot be apportioned on the basis of Actual Meals. Actuals may be different in every period. Fixed cost should be apportioned on the basis of estimated Basis. Actual Meal Cost 73000 Actual Meas 60000:60000 36500 36500 Actual Meal Cost is Variable cost . We can apportion on the basis of Actual Meals. Total 104900 63100 2 Particular Total Cost Basis Ratio Auto Division Truck Division Fixed Cost 95000 Actual Meal Cost 73000 Total Cost 168000 Actual Meas 60000:60000 84000 84000 3 Auto Division Truck Division Total Cost Charged 104900 63100 Total Cost Allocated 84000 84000

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