Question 1 - Cost Allocation Process

Apex Company's Copy Department, which does all of the photocopying for the Sales Department and the Administration Department, budgets the following costs for the year, based on the expected activity indicated:

Expected copies for the year - 5,000,000

Budgeted annual costs:

Salaries (fixed) - $100,000

Employee benefits (fixed) - 12,500

Depreciation of copy machines (fixed) - 10,000

Utilities (fixed) - 5,000

Paper (variable) - 50,000

Toner (variable) - 50,000

Budgeted paper cost per copy - $0.01

Budgeted toner cost per copy - $0.01

The costs are assigned to two pools, one for fixed and one for variable costs. The costs are then assigned to the Sales Department and the Administrative Department. Fixed costs are assigned on a lump-sum basis, as follows:

Fixed costs to Sales - 40%

Fixed costs to Administration - 60%

The variable costs are assigned at the following:

Variable costs per copy - $0.02

The number of copies made during the year are:

Total copies made - 4,800,000

Copies made for Sales - 2,500,000

Copies made for Administration - 2,300,000

Required - Calculate the Copy Department costs allocated to Sales and Administration.

Question 2 - Cost Allocation Process

Marvin Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Marvin's allocation of service department costs:

Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs.

Required - Allocate service department costs to production departments.

Question 3 - Choice of Allocation Based, Problems with Cost Allocation

Required -

a. Prepare a schedule showing the allocations to the two divisions using each allocation base.

b. Referring to your answer to a, explain why allocations are sometimes considered arbitrary.

Attachment:- Assignment.rar