Three not-for-profit organizations operate separately in Central City. The most established entity, Central Support, has been around for over 100 years and generates by far the largest amount of dona-tions. Central Kidz. Zone was founded 30 years ago and generates less than half of what Central Support brings in. Central Emergency Aid was founded just 20 years ago and provides relief to those in the most urgent of cir-cumstances. Central Emergency Aid is building its donation network and is already close to the level of Central Kidz Zone in terms of fundraising dollars.Until last year, all three entities operated separately —separate staff, separate spaces, and separate work plans. Then last year, discussions began to coordinate some of their administrative efforts for efficiency pur-poses, recognizing that each could benefit if they were willing to give up a bit of comfort.Each entity is paying the following amount annually to rent administrative space and cover the cost of staff.Central Support$140,000Central Kidz Zone80,000Central Emergency Aid60,000After some searching, they found a space that would accommodate everyone's needs, while making it possible to reduce administrative hours by 30%. The new, larger space plus administrative labor cost for all would be $200,000.Required1.Using the stand-alone method, determine how much of the total cost for shared space and administrative labor would be allocated to each entity.2.Use the incremental method to allocate the new shared cost to each entity, ranking the entities by last year's fundraising results (the entity with the largest fundraising amount will be ranked first).3. Calculate the amount each entity would save from its prior year's costs if (1) the stand-alone method is used and (2) the incremental method is used.4. Recognizing the Kidz Zone and Central Emergency Aid groups are fairly new to this commmunity, one manager suggests it would be best to use the method that minimizes cost to these entities, given their lower donations to date. A different manager proposes that the most established entity, Central Support, be allowed to benefit the most from this coordinated effort. Which of these managers' recommendations do you agree the most with? Explain.
Three not-for-profit organizations operate separately in Central City. The most established entity, Central Support, has been around for over 100 years and generates by far the largest amount of dona-tions. Central Kidz. Zone was founded 30 years ago and generates less than half of what Central Support brings in. Central Emergency Aid was founded just 20 years ago and provides relief to those in the most urgent of cir-cumstances. Central Emergency Aid is building its donation network and is already close to the level of Central Kidz Zone in terms of fundraising dollars.
Until last year, all three entities operated separately —separate staff, separate spaces, and separate work plans. Then last year, discussions began to coordinate some of their administrative efforts for efficiency pur-poses, recognizing that each could benefit if they were willing to give up a bit of comfort.
Each entity is paying the following amount annually to rent administrative space and cover the cost of staff.
Central Support
$140,000
Central Kidz Zone
80,000
Central Emergency Aid
60,000
After some searching, they found a space that would accommodate everyone's needs, while making it possible to reduce administrative hours by 30%. The new, larger space plus administrative labor cost for all would be $200,000.
Required
1.Using the stand-alone method, determine how much of the total cost for shared space and administrative labor would be allocated to each entity.
2.Use the incremental method to allocate the new shared cost to each entity, ranking the entities by last year's fundraising results (the entity with the largest fundraising amount will be ranked first).
3. Calculate the amount each entity would save from its prior year's costs if (1) the stand-alone method is used and (2) the incremental method is used.
4. Recognizing the Kidz Zone and Central Emergency Aid groups are fairly new to this commmunity, one manager suggests it would be best to use the method that minimizes cost to these entities, given their lower donations to date. A different manager proposes that the most established entity, Central Support, be allowed to benefit the most from this coordinated effort. Which of these managers' recommendations do you agree the most with? Explain.
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