1)
2)a
2)b,c
Exercise 9-34 Unitwide versus Department Allocation-Decision Making (LO 9-1, 2, 3) The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York unit is new, much like a start-up company. The costs of the Personnel Department are allocated to each unit based on the number of employees in order to determine unit profitability. The current rate is $580 per employee. Data for the fiscal year just ended show the following: Miami New York Number of employees 1,280 380 Number of new hires 28 Number of employees departing 12 22 18 Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to Orlando that the rates would be as follows: Allocation based on Variable Rate Fixed Rate Tot Rate Employees $ 90 per employee $190 per employee $ 280 per employee Transitions $2,080 per transition $4,145 per transition $ 6.225 per transition Required: a. Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using the approach Orlando prefers. Total Allocated Cost Mar Now York Exercise 9-32 Plantwide versus Department Allocation (LO 9-2, 3) Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven manages Department SV and Charlene manages Department C. The product costs (per thousand gallons) follow Strawberry Vanilla Chocolate Direct labor (per 1,000 galions) 5762 $ 837 $1,137 Raw materials per 1.000 gallons) 812 612 512 Required: a. If the number of hours of labor per 1,000 gallons is 62 for strawberry, 68 for vanilla, and 100 for chocolate, compute the total cost of 1,000 gallons of each flavor using plantwide allocation Total Cost Strawberry Vanilla Chocolate b. Charlene's department uses older, outdated machines. She believes that her department is being allocated some of the overhead of Department SV, which recently bought state-of-the-art machines. After she requested that overhead costs be broken down by department, the following information was discovered: Department SV Department Overhead $101,280 $32,130 Machine-hours 25,320 37,200 Labor hours 25,320 18,900 Using machine-hours as the department allocation base for Department SV and labor-hours as the department allocation base for Department C, compute the allocation rate for each. (Round your answers to 2 decimal places.) Allocation Rate Department SV Department per machine hour per labor hour c. Compute the cost of 1,000 gallons of each flavor of ice cream using the department allocation rates computed in requirement (b) if the number of machine-hours for 1,000 gallons of each of the three flavors of ice cream are as follows: strawberry, 62; vanilla, 68; and chocolate, 162. Direct labor hours by product remain the same as in requirement Total Cost Strawberry Vanilla Chocolate
