CRANE CORP CRANE CORP. has a centralized employee travel department which handles travel arrangements for the East, Central and West divisions of the company. Budgeted annual costs for operating the travel department (NOT including the costs of the transportation, rooms,etc.) are $225,000. These are just the costs of running the department, NOT the travel costs themselves 1. Is there an allocation needed in this situation? WHY?2. Why do the costs of centralized service departments need to be allocated? List and explain at least two reasons.3. What are the cost objects in this situation?4. What is the cost pool?5. Suggest some alternative bases for allocating (charging) the service department costs generated by the employee travel department.6. What are the important factors that must be considered in determining the basis upon which to allocate these costs?7. Which allocation base is preferable and WHY?8. Assume that CRANE has chosen to allocate the travel department costs on the basis of the number of reservations made. On a preliminary basis, 900 reservations were estimated for 2022. The following actual numbers of reservations were made: East 200 res. Central 450 res. West 150 res. 9. What is the charge rate for the employee travel department?10. The charge rates were determined based on an estimate of 900 reservations, yet only 800 were actually made. Reason for concern? WHY or WHY NOT? 11. How much will each division be charged for evaluation purposes:a. Eastb. Centralc. West 12. Other than the fact that the actual costs are not available until the end of the period, why is the REAL REASON the company used BUDGETED AMOUNTS for allocating the costs of the travel department rather than actual amounts?MONTCLAIR AIRLINES, INC. MONTCLAIR AIRLINES, INC. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared: The service department charge rate for the service department costs was based on revenues. Since the revenues of the two divisions were the same, the service department charges to each division were also the same. The following information is available regarding estimated service department usage: During the period, the actual service-department usage equaled the estimated usage. Required: 1. Does the income from operations for the two divisions accurately measure performance? Why or why not?2. Prepare divisional income statements using the appropriate allocations based on the activity bases provided.3. Are we going to use the revised "Income from Operations" number for anything else? If so, what?

12. Other than the fact that the actual costs are not available until the end of the period, why is the REAL REASON the company used BUDGETED AMOUNTS for allocating the costs of the travel department rather than actual amounts? MONTCLAIR AIRLINES, INC. MONTCLAIR AIRLINES, INC. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared: MONTCLAIR AIRLINES, INC. DIVISIONAL INCOME STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 Passenger Division Cargo Division Revenues $1,400,000 $1,400,000 Operating expenses 950,000 1,200,000 Income from operations before service department charges $450,000 $200,000 Less service department charges: Training $80,000 $80,000 Flight scheduling 75,000 75,000 Reservations 105,000 260,000 105,000 260,000 Income from operations $190,000 $60,000) The service department charge rate for the service department costs was based on revenues. Since the revenues of the two divisions were the same, the service department charges to each division were also the same. The following information is available regarding estimated service department usage: Passenger Cargo Division Division Total Number of personnel trained 200 250 Number of flights 250 350 600 Number of reservations requeste 14,000 0 14,000 During the period, the actual service-department usage equaled the estimated usage. Required:m CRANE CORP. has a centralized employee travel department which handles travel arrangements for the East, Central and West divisions of the company. Mgeted annual costs for operating the travel department (NOT including the costs of the transportation, rooms,etc.) are _$225,m. These are just the costs of running the department, NOT the travel costs themselves 1. Is there an allocation needed in this situation? WHY? 2. Why do the costs of centralized service departments need to be allocated? List and explain at least two reasons. 3. What are the cost objects in this situation? 4. What is the cost pool? 5. Suggest some alternative bases for allocating (charging) the service department 6 costs generated by the employee travel department. 6. What are the important factors that must be considered in determining the basis upon which to allocate these costs? 7. Which allocation base is preferable and WHY? 8. Assume that CRANE has chosen to allocate the travel department costs on the basis of the number of reservations made. On a preliminary basis, 900 reservations were estimated for 2022. The following actual numbers of reservations were made: East 200 res. Central 450 res. West 150 res. 9. What is the charge rate for the employee travel department? 10. The charge rates were determined based on an estimate of 900 reservations, yet only 800 were actually made. Reason for concern? WHY or WHY NOT? 11. How much will each division be charged for evaluation purposes: a. East b. Central c. West