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Silver Airlines is a small airline headquartered and operating out of Fort Lauderdale, FL. It has three secondary hubs; Orlando, Tampa, and Jacksonville. The airline CEO needs to determine the full cost of a flight to each hub. To determine this cost, the costs of the support departments (baggage and maintenance) should be allocated to each city hub. These support departments are housed in Fort Lauderdale, FL (any hub specific baggage and/or maintenance costs at the hub cities is directly traced to that hub). Budgeted and actual information for the year are provided below for the support departments and the hub cities: Support Departments Maintenance Baggage Hub Cities Tampa Orlando Jacksonville Budgeted data: Fixed Overhead $ 300,000 $ 140.000 $ 24,000 $ 16,000 $ 28,000 $ 37,500 $ 54,000 $ 6,000 $ 3,000 11,000 $ 4,500 17,000 7,000 2,500 5,000 8,000 Variable Overhead Hours of flight time* Number of Passengers Actual data: Fixed Overhead Variable Overhead Hours of flight time* Number of Passengers $ $ 295,000 $ 90,000 $ 145,000 $ 28,500 $ 26,000 $ 6,200 $ 2700 6500 15,000 $ 11,000 $ 4800 18500 27,500 5,800 3000 7000 *Normal activity levels Required 1. Using the direct method, allocate the support service costs to each hub city, assuming that the objective is to determine the cost of operating each hub. 2. Using the direct method, allocate the support service costs to each hub city, assuming that the objective is to evaluate performance. Do any costs remain in the two support departments after the allocation? If so, how much? Explain. NOTE: Your answer must be well supported for full points (use numbers to support your answer). 1. Allocation Ratios for Fixed Costs Hours of flight time Orlando 3,000 30.00% Tampa 4,500 45.00% Jacksonville 2,500 25.00% Total 10,000 100.00% No. of passengers 8,000 26.67% 17,000 56.67% 5,000 16.67% 30,000 100.00% Variable rates: Expected cost Activity level Maintenance $37,500 10,000 $3.7500 Baggage $54,000 30,000 $1.8000 Allocation Based on Budgeted Activity Orlando Tampa Jacksonville Maintenance-fixed: Cost: $300,000 Ratio: Maintenancevar.: Rate: Flight hrs. Baggagefixed: Cost: Ratio: Baggagevar.: Rate: Passengers 2. Tampa Jacksonville Allocation Based on Actual Activity Orlando Maintenance-fixed: Cost: Ratio: Maintenancevar.: Rate: Flight hrs. Baggagefixed: Cost: Ratio: Baggage-var. Rate: Passengers Do any costs remain in the two support departments ? [Key essay answer here) Silver Airlines is a small airline headquartered and operating out of Fort Lauderdale, FL. It has three secondary hubs; Orlando, Tampa, and Jacksonville. The airline CEO needs to determine the full cost of a flight to each hub. To determine this cost, the costs of the support departments (baggage and maintenance) should be allocated to each city hub. These support departments are housed in Fort Lauderdale, FL (any hub specific baggage and/or maintenance costs at the hub cities is directly traced to that hub). Budgeted and actual information for the year are provided below for the support departments and the hub cities: Support Departments Maintenance Baggage Hub Cities Tampa Orlando Jacksonville Budgeted data: Fixed Overhead $ 300,000 $ 140.000 $ 24,000 $ 16,000 $ 28,000 $ 37,500 $ 54,000 $ 6,000 $ 3,000 11,000 $ 4,500 17,000 7,000 2,500 5,000 8,000 Variable Overhead Hours of flight time* Number of Passengers Actual data: Fixed Overhead Variable Overhead Hours of flight time* Number of Passengers $ $ 295,000 $ 90,000 $ 145,000 $ 28,500 $ 26,000 $ 6,200 $ 2700 6500 15,000 $ 11,000 $ 4800 18500 27,500 5,800 3000 7000 *Normal activity levels Required 1. Using the direct method, allocate the support service costs to each hub city, assuming that the objective is to determine the cost of operating each hub. 2. Using the direct method, allocate the support service costs to each hub city, assuming that the objective is to evaluate performance. Do any costs remain in the two support departments after the allocation? If so, how much? Explain. NOTE: Your answer must be well supported for full points (use numbers to support your answer). 1. Allocation Ratios for Fixed Costs Hours of flight time Orlando 3,000 30.00% Tampa 4,500 45.00% Jacksonville 2,500 25.00% Total 10,000 100.00% No. of passengers 8,000 26.67% 17,000 56.67% 5,000 16.67% 30,000 100.00% Variable rates: Expected cost Activity level Maintenance $37,500 10,000 $3.7500 Baggage $54,000 30,000 $1.8000 Allocation Based on Budgeted Activity Orlando Tampa Jacksonville Maintenance-fixed: Cost: $300,000 Ratio: Maintenancevar.: Rate: Flight hrs. Baggagefixed: Cost: Ratio: Baggagevar.: Rate: Passengers 2. Tampa Jacksonville Allocation Based on Actual Activity Orlando Maintenance-fixed: Cost: Ratio: Maintenancevar.: Rate: Flight hrs. Baggagefixed: Cost: Ratio: Baggage-var. Rate: Passengers Do any costs remain in the two support departments ? [Key essay answer here)