Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Chapter 2, Problem 66P
Cost Allocation with Cost Flow Diagram
The library at Pacific Business School (PBS) serves both undergraduate and graduate programs. The dean of PBS is interested in evaluating the profitability of the degree programs and has asked the head of the library, Rex Gilmore, to allocate the annual library cost of $4,035,000 to the two programs.
Rex believes that two cost drivers explain most of the costs: number of students and credit hours. Using information from a previous analysis, he split the annual library budget as follows:
Required
- a. Allocate the cost of the library to the two programs (undergraduate and graduate).
- b. Draw a cost flow diagram to illustrate your answer to requirement (a).
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Gipps Business College (GBC) has two degree programs, undergraduate (UG) and graduate (GRAD) and three service departments, information technology (IT), Event Planning (EP), and Career Services (CS). The CFO of GBC is conducting a profitability analysis of the two programs and wants to include the appropriate costs of the service departments in the costs of the two degree programs. As a part of the analysis, the CFO has collected the following usage patterns of the ser vice departments over the last two years.
Using Departments
Suppying Department
IT
EP
CS
UG
GRAD
IT
0
10%
20%
40%
30%
EP
0
0
25%
25%
50%
CS
0
0
0
60%
40%
Direct Costs
$ 70,000.00
$ 90,000.00
$ 100,000.00
To be determined
Required:-
a.) The CFO is unsure what the best way to allocate the cost is and has asked you for the allocations to the UG and GRAD programs using:
The direct method;
The step method starting with IT, followed by EP,…
Burgess Business School has two degree programs, BBA and MBA. The school uses an ABC system to cost the three support services
it provides to students from both programs: Career Center, Events, and Library. Following are the costs of these three activities and the
cost drivers used in the system:
Activity
Cost
Activity
Career Center
Event planning and hosting.
Library
For the most recent year, data collected from the central IT systems indicate the following:
MBA
5,600
4,500
30,300
BBA
10,400
5,500
70,700
$ 448,000
440,000
606,000
Cost Driver
Interview-hours
Event attendance
Number of visits
Interview-hours
Event attendance
Library visits
Required:
a. Compute the cost-driver rates for the three activities at the school.
b. Suppose that in a future period, no students from the MBA program visited the Library. What amount of the Library cost would be
assigned to the MBA program?
Variable Costing Income Statement for a Service Company
The actual and planned data for Underwater University for
the Fall term were as follows:
Enrollment
Tuition per credit hour
Credit hours
Registration, records, and marketing costs per
enrolled student
Revenue
Variable costs:
Registration, records, and marketing costs $
Instructional costs
Total variable costs
Instructional costs per credi ur
Depreciation on classrooms and equipment
Registration, records, and marketing costs vary by the
number of enrolled students, while instructional costs vary
by the number of credit hours. Depreciation is a fixed cost.
Contribution margin
Depreciation on classrooms and equipment
Operating income
$
Actual
$
4,500
Prepare a variable costing income statement showing the
contribution margin and operating income for the Fall term.
Underwater University
Variable Costing Income Statement
For the Fall Term
$
$120
60,450
$275
$64
$825,600
Chapter 2 Solutions
Fundamentals Of Cost Accounting (6th Edition)
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