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14-19  (25 min.)  Cost allocation to divisions.

1.PulpPaperFibers

Segment margin$3,200,000$7,100,000           $9,700,000

Percentages   16.0%   35.5%   48.5%

Allocation: ($9,000,000 ×

16.0%, 35.5%, 48.5%)$1,440,000$3,195,000$4,365,000

2.

Percentages for new bases of allocation

PulpPaperFibers

Number of employees   300  250  450

Percentages   30%  25%  45%

Floor space (square feet)30,00024,00066,000

Percentages   25%  20%  55%

Divisional administrative$1,200,000$1,800,000$3,000,000

Percentages20%30%50%

Allocation of indirect costs

PulpPaperFibers

Human resource management

($1,800,000 × 30%, 25%, 45%)$   540,000$   450,000$   810,000

Facility

($2,700,000 × 25%, 20%, 55%)     675,000     540,000  1,485,000

Corporate administration

($4,500,000 × 20%, 30%, 50%)     900,000  1,350,000  2,250,000

Total$2,115,000$2,340,000$4,545,000

3. The new approach is preferable because it is based on cause-and-effect relationships between costs and their respective cost drivers in the long run.

Human resource management costs are allocated using the number of employees in each division because the costs for recruitment, training, etc., are mostly related to the number of employees in each division. Facility costs are mostly incurred on the basis of space occupied by each division. Corporate administration costs are allocated on the basis of divisional administrative costs because these costs are incurred to provide support to divisional administrations.

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