Question
Mahoney & Levine is an accounting firm serving its customers in the areas of Audit, Tax and Management Advisory Services. In 2019, a new photocopying
Mahoney & Levine is an accounting firm serving its customers in the areas of Audit, Tax and Management Advisory Services. In 2019, a new photocopying department was established. Before deciding on the size and capacity of the photocopying service each unit was asked to predict their annual and monthly peak usage. Estimated annual usage (in pages) for each department was as follows
Audit Department | 94,500 |
Tax Department | 67,500 |
MAS Department | 108,000 |
The Audit and MAS departments reported that their usage was distributed evenly throughout the year, with an estimated monthly usage of 7,875 and 9,000 pages, respectively. In contrast to the Audit and MAS departments, the Tax department indicated that one-third of its annual usage will occur in the month of April with 22,500 pages.
Based on this information, Mahoney & Levine decided to lease a high capacity photocopy machine and hire a person for the photocopy services. The costs associated with the Photocopying Department were as follows:
Fixed Costs (Machine Rental, Salaries): $26,190 per year
Variable Costs (paper and toner): $0.023 per page copied
The following budgeted and actual information is obtained:
Estimated (budgeted) Yearly Pages | Actual Usage in Year | |
Audit Department | 94,500 | 92,000 |
Tax Department | 67,500 | 65,000 |
MAS Department | 108,000 | 115,000 |
Total Pages | 270,000 | 272,000 |
Required:
Discuss various alternatives for fair allocation of the photocopying department costs between Audit, Tax and MAS departments.
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