Frogs, Inc. Part #3 Allocating Service Department Costs Goal: To allocate service department costs in a service company and use them to calculate full cost per unit. Information: Frogs, Inc.s owners were impressed by your analysis and has decided that a more detailed cost allocation system would indeed be better for the company. As part of your managerial duties, they have asked you to improve their cost accounting system. In the past, the owners have used only DM, DL, and Manufacturing OH to calculate the cost of their jobs. However, you know that there are other costs in the company that contribute to the jobs. You tell the owners that you will present a cost analysis that includes all of these costs. The owners plan to meet with you on Friday to evaluate your proposal. After talking with the service department managers and asking them for the figures you need, they present you with the following chart of information: Design Department Engineering Department Concrete Casting Department Owners Admin Support Marketing Budgeted Overhead $40,000 $200,000 $23,000 $21,000 $50,000 $40,000 Assigned Driver Number of projects Direct labor hours Number of frogs made Number of projects Square feet of office space Number of projects Budgeted Drivers 200 16,640 1,000 200 4,500 200 Office Space Used 600 2,000 400 750 0 750 Number of projects 50 50 50 50 0 0 Frogs, Inc. Page 8 of 13 Required: 1. Identify and summarize the problem or issue: What is the fundamental or underlying issue or issues in this problem? Explain. 2. Calculate the average cost to be assigned to each project (assume the projects are all the same for simplicity) using only DM, DL, and the MOH in Part 2 question 4 to compare the average cost of Frogs, Inc.s projects to the cost of the proposed parking lot job. 3. Now, calculate the cost of the proposed job using your answers from Part 2, question 4 to include the Service Department costs. The company has decided to use the sequential method for allocating service overhead and apply Admin Support cost to marketing as well as the production departments. 4. Which result will the customer prefer? Explain. 5. Based on your answers to the previous questions, should Frogs, Inc. accept the parking lot job?