Allocation of Costs, accounting homework
Discussions
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Allocation of Costs
;
Analyze the following scenario: Jump Hospital currently allocates all maintenance department costs based on departmental square feet. ; However, the manager of the pharmacy department has suggested that an ABC approach be used for the portion of the maintenance department costs that relate to repairing equipment. ; Her contention is that the pharmacy has relatively little equipment that breaks. ; However, it must subsidize many high-tech departments that require expensive equipment repairs. ; Using the tables below, calculate the maintenance cost assigned to the pharmacy using the existing method and using an ABC approach. ; Clearly label your calculations in your analysis. ; Respond to at least two of your classmates’ postings.
Maintenance Costs
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Routine Maintenance |
Repairs |
Total |
|
Volume (Square Feet) |
100,000 |
800 |
|
Labor Hours |
10,000 |
4000 |
14,000 |
Labor Cost/Hour |
$12.00 |
$18.00 |
$13.71 |
Supplies |
$20,000 |
$80,000 |
$100,000 |
Administration |
$15,000 |
;
Department Information |
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Pharmacy |
All Other Departments |
Total |
|
Square Feet |
2,000 |
98,000 |
100,000 |
Volume of Repairs |
3 |
797 |
800 |
Hours of Repairs |
6 |
3,994 |
4,000 |
Supplies Used for Repairs |
$200 |
$79,800 |
$80,000 |
Investment Decision
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Analyze the following scenario: Duncombe Village Golf Course is considering the purchase of new equipment that will cost $1,200,000 if purchased today and will generate the following cash disbursements and receipts. ; Should Duncombe pursue the investment if the cost of capital is 8 percent? ; Why? ; Clearly label your calculations in your analysis. ; You must respond to at least two of your classmates’ postings to receive full credit.
Year |
Cash Receipts |
Cash Disbursements |
Net Cash Flow |
1 |
1,000,000 |
500,000 |
500,000 |
2 |
925,000 |
475,000 |
450,000 |
3 |
800,000 |
450,000 |
350,000 |
4 |
750,000 |
430,000 |
320,000 |