Enterprising Limousines operate a fleet of cars in a large east coast city. Operations are organised in four regional areas, each the responsibility of a local manager. It has been decided to provide a central facility to provide for regular servicing of the vehicles. Major repairs are to be subcontracted.

For internal control and costing purposes, all expenditures made by the central facility•

are to be charged out to the four areas.

Cost estimates for this facility at different annual levels of activity are available as follows:

Miles 500000 400000 $
176000 152000 Cost Accounting The size of the central servicing facility is established following the submission of estimates of activity for the coming year by each local manager. During the year, the estimates were not met exactly. A comparison of results and estimates showed:
Region Estimate Actual miles miles 1 102000 105000 2 90 000 85 000 3 156000 160000 4 132000 100000 Total servicing expenditure amounted to $164 000.
REQUIRED

(a) Devise a scheme for allocating the servicing costs to regions which takes into account the behaviour of those costs, and show the resulting allocations for the year given

(b) How would your results have to be adjusted if total expenditure had been $159000? Explain briefly