World Airlines has three service departments: Ticketing, baggage handling and en

Question

World Airlines has three service departments: Ticketing, baggage handling and engine maintenance. The service department costs are estimated for separate cost pools formed by department and are allocated to two revenue-producing departments: domestic flights and international flights. World does not differentiate between fixed and variable costs in making allocations. The following data relate to the allocations:

                                                                Budgeted Data
                                                      Costs                     Air Miles
Ticketing                                       5,110,000
Baggage Handling                           3,396,000
Engine Maintenance                        7,020,000
Domestic Flights                                                          6,323,800
International Flights                                                   25,295,200

Allocate the service department costs to the revenue-producing departments using air miles as the allocation base:

Allocated to:

Domestic:
International:

Explanation / Answer

Sevice department Costs
Ticketing                       5,110,000
Baggage Handling          3,396,000
Engine Maintenance       7,020,000
Total costs                15,526,000
                                ==========

Total air miles = 6,323,800 + 25,295,200 = 31,619,000
Cost per air mile = 15,526,000 / 31,619,000 = 0.491034

Allocated to:
Domestic:            6,323,800 x 0.491034 =   3,105,200
International:     25,295,200 x 0.491034 = 12,420,800

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.