Mukriz Motors is a small motor supply outlet that sells motors to companies that

Question

Mukriz Motors is a small motor supply outlet that sells motors to companies that
make various small motorized appliances. The fixed operating costs of the company
are RM300,000 per year. The controlling shareholder, interested in product
profitability and pricing, wants all costs allocated to the motors and wants to review
the company status on a quarterly basis. The shareholder is trying to determine
whether the costs should be allocated each quarter based on the 25% of the annual
fixed operating costs (RM75,000) or by using an annual forecast budget to allocate
the costs. The following information is provided for the operations of the company (in
units):
Forecast Actual
Sales for First Quarter 5,000 4,850
Sales for Second Quarter 8,000 7,900
Sales for Third Quarter 8,000 8,125
Sales for Fourth Quarter 3,000 3,125

Required:
(a) Compute the amount of fixed operating costs that are assigned to each motor by
quarter when actual sales are used as the allocation base and RM75,000 is
allocated.

(b) Compute the amount of fixed cost which is recovered each quarter under
requirement (a).

(c) Identify the amounts of fixed operating costs are assigned to each motor by
quarter when forecast sales are used as the allocation base and the rate is
calculated annually as part of the budgetary process.

(d) Compute the amount of fixed cost which is recovered each quarter under
requirement (c).

(e) Between requirement (a) and (c), identify with explanations which method seems
more appropriate in this case.

Explanation / Answer

a) Actual Sales

Q1 75000/4850 = 15.46

Q2= 75000/7900 = 9.49

Q3 = 75000/8125= 9.23

Q4=75000/3125 = 24.00

b) Recovered fixed cost each quarter

Q1 75000

Q2 75000

Q3 75000

Q4 75000

c) Total forecast sales 24000

Recovery per motor 300000/24000 = 12.5

d) Recovery per quarter

Q1 12.5*5000 = 62500

Q2 12.5*8000= 100000

Q3 12.5*8000 = 100000

Q4 12.5* 3000 = 37500

e) The recovery under a) where in actual sales are used as bases for apportionment is a more realistic and practical method.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

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