1. Dallas Company's maintenance department has 10 employees and provides maintenance services to the human resources department and to the company's three operating departments. Human resource department costs are allocated to the three operating departments. The assembly department has 75 employees; the finishing department has 15 employees; and the sales department has 10 employees. The service department to which maintenance services are provided is the human resources department, which has 15 employees. The service department costs are allocated using the step method and based on the number of employees. The total amount of costs for the maintenance department and human resource department are $100,000 and $150,000, respectively.

Required:

Determine the amount of maintenance cost that should be allocated to each department.

2. Marks Company makes one product, for which it has established the following standards for materials:

Average quantity of material per unit of product: 4.5 pounds

Price per pound of materials: $16

During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000.

Required:

(a) Determine the total flexible budget materials variance and indicate whether it is favorable or unfavorable.

(b) Calculate the materials price variance and indicate whether it is favorable or unfavorable.

(c) Determine the materials usage variance and indicate whether it is favorable or unfavorable.

Answer:

(a) Flexible budget materials variance:

(b) Materials price variance:

(c) Materials usage variance:

3. Chavez Company is considering purchasing new equipment or overhauling its existing equipment. The manager has gathered the following information:

Current machinery:
Original cost	$	50,000
Accumulated depreciation		40,000
Annual operating costs		5,000
Current market value		1,500
Salvage value at the end of five years		-
Cost of overhauling machinery:
Cost of overhaul	$	12,000
Annual operating costs after overhauling		2,000
Salvage value at the end of five years		-
New machinery:
Cost	$	56,000
Annual operating costs		1,000
Salvage value at the end of five years		-

Required:

a) Identify the sunk costs associated with this decision.

b) Compute the increase or decrease in total income over the five-year period if the company chooses to buy the new equipment.

c) Compute the increase or decrease in total income over the five-year period if the company chooses to overhaul its existing machinery.

d) What is your recommendation for this decision?

4. Bonnie's Bakery is a relatively small company that makes pies, cakes, and cookies sold in supermarkets. Sales employees' bonuses are determined based on meeting or exceeding the budget. For the coming year, sales employees have set a budget target of 3% for sales growth. The market has been growing at 6%, and the company has averaged 10% growth for the last two years. What is the problem here, and how can it be fixed?