Question - Allocation of Costs Budgeted vs. Actual
Price Bus Lines provides school bus service to two school districts: East and West.
Price has one support centre that is responsible for service, maintenance, and cleanup of its buses. The costs of the support centre are allocated to each district on the basis of total kilometers driven.
During the first month of the year, the support centre was expected to spend a total of $100,000. Of this total, $25,000 was viewed as being fixed.
During the month, the support centre incurred actual variable costs of $105,000 and actual fixed costs of $20,000.
The normal and actual kilometers logged by each district are given below:
East West
Normal activity 170,000 80,000
Actual activity 175,000 90,000
Required:
a. Compute the predetermined service cost per kilometer driven.
b. Compute the costs that would be allocated at the end of the month to each district for purposes of performance evaluation. Hint: calculate and apply the budgeted variable cost/kilometer.
c. Determine the costs of the support centre that were not allocated to the two districts. Why were these costs not allocated to the districts?