Exploding Diapers,Inc is a daycare company in Richmond,VA.The company has expanded and now has 3centers.Center 1's Income
Question:
Exploding Diapers,Inc is a daycare company in Richmond,VA.The company has expanded and now has 3centers.Center 1's Income Statement showed the following:
Revenue$240,000
Direct Expenses195,200
OH50,000
Operating Income(Loss)$(5,200)
The company's overhead for the year included the salary of theowner,Jihyo($90,000),and advertising ($60,000), and was allocated using a peanut-butter spread across all 3centers so that each was allocated $50,000.
Jihyospends her time overseeing the operations of all three centers and handling all paperwork (e.g., billing), and wants to reallocate the existing overhead costs to centers using recently collected information with respect to key activities and activity cost drivers. The estimated activity-based cost and driver data, which in the future will be collected automatically via a new software package using a commercially available product tailored to daycare providers, is presented below:
Total Activity Costs
Allocation base
Account Maintenance(e.g., billing)
$36,000
BASE: Number of preschool children
Meeting with parents
18,000
BASE: Number of parent meetings
Facilities maintenance(calling repairmen, etc.)
22,500
BASE: Maintenance costs
Overseeing operations
13,500
BASE: Spread evenly across centers
Gretchen's total salary
$90,000
Advertising
60,000
BASE: Number of advertising promotions
Activity Consumption by Center
Number of preschool children
Center 1: 48
Center 2: 60
Center 3: 90
Total Activity: 198
Practical Capacity: 225
Number of parent meetings
Center 1: 48
Center 2: 60
Center 3: 350
Total Activity: 458
Practical Capacity: 480
Maintenance costs
Center 1: 5,000
Center 2: 4,000
Center 3: 2,000
Total Activity: 11,000
Practical Capacity: 11,250
Number of advertising promotions
Center 1: 6
Center 2: 6
Center 3: 20
Total Activity: 32
Practical Capacity: 32
Compute the revised operating income for Center 1 using "best practices" under the activity-based-costing method proposed by Jihyo. (ROUND to 2 decimal places in all calculations and enter your answer rounded to the nearest dollar. For example, if you believe the answer is "$25,347.69", enter "$25,348".)
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso