Business
Engineering
Math
Science
Social Science$1,900,000Human resources (HR) costsAccounting department costs1,400,0001,200,000Rent and depreciationOther600,000$5,100,000Total costs DoughnutsBreadCake$20,900,000$4,500,000$13,400,000Total revenuesDirect costs14,500,0003,200,0007,250,000$ 6,150,000300$ 6,400,000$1,300,000Segment marginNumber of employeesSquare feet of space4001004,00010,0006,000
Cost allocation to divisions. Forber Bakery makes baked goods for grocery stores and has three divisions: bread, cake, and doughnuts. Each division is run and evaluated separately, but the main headquarters incurs costs that are indirect costs for the divisions. Costs incurred in the main headquarters are as follows:
The Forber upper management currently allocates this cost to the divisions equally. One of the division managers has done some research on activity-based costing and proposes the use of different allocation bases for the different indirect costs—number of employees for HR costs, total revenues for accounting department costs, square feet of space for rent and depreciation costs, and equal allocation among the divisions of “other” costs. Information about the three divisions follows:
- Allocate the indirect costs of Forber to each division equally. Calculate division operating income after allocation of headquarter costs.
- Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. Comment on the allocation bases used to allocate headquarter costs.
- Which division manager do you think suggested this new allocation. Explain briefly. Which allocation do you think is “better?”
Image Transcriptionclose
$1,900,000 Human resources (HR) costs Accounting department costs 1,400,000 1,200,000 Rent and depreciation Other 600,000 $5,100,000 Total costs
Image Transcriptionclose
Doughnuts Bread Cake $20,900,000 $4,500,000 $13,400,000 Total revenues Direct costs 14,500,000 3,200,000 7,250,000 $ 6,150,000 300 $ 6,400,000 $1,300,000 Segment margin Number of employees Square feet of space 400 100 4,000 10,000 6,000
Expert Answer
- The indirect costs are allocated to the divisions equally.
2. Following are the indirect cost allocated...
Business
Accounting
Related Accounting Q&A
Q: On July 1, year 2, a company decided to adopt IFRS. The company’s first IFRS reporting period is as ...
A: IFRS: International Financial Reporting Standard is abbreviated as IFRS. The IFRS is set up to brin...
Q: Bronson Industries reported a deferred tax liability of $8 million for the year ended December 31, 2...
A: Taxable Income The amount of adjusted gross income which is liable to be taxed is known as taxable i...
Q: Customer profitability, distribution. Green Paper Delivery has decided to analyze the profitability ...
A: Customer Profitability Analysis: Customer profitability analysis is the process of ascertaining the ...
Q: Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has deci...
A:
Q: In 2016, the Barton and Barton Company changed its method of valuing inventory from the FIFO method ...
A: Prepare journal entry
Q: Variance analysis, multiple products. The Chicago Tigers play in the American Ice Hockey League. The...
A: Sales Volume Variance:The sales volume variance is the difference between the budgeted amount and th...
Q: The two basic sources of stockholders’ equity are assets and equity. preferred and common. retained...
A: Stockholder’s equity:It represents the amount of investment made by the owner in the business.
Q: Market-share and market-size variances (continuation of 14-38). Miami Infonautics’ senior vice presi...
A: Market share variance:Market share variance computes the deviation between the actual market share a...
Q: Define a change in estimate and provide an illustration. When is a change in accounting estimate eff...
A: Change in accounting estimate: This change occurs when a change decides to change the estimates base...
