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In: Accounting

Allocation: Fixed and Variable Costs, Budgeted Fixed and Variable Costs Biotechtron, Inc., has two research laboratories...

Allocation: Fixed and Variable Costs, Budgeted Fixed and Variable Costs

Biotechtron, Inc., has two research laboratories in the Southwest, one in Yuma, Arizona, and the other in Bernalillo, New Mexico. The owner of Biotechtron centralized the legal services function in the Yuma office and had both laboratories send any legal questions or issues to the Yuma office. The legal services support center has budgeted fixed costs of $175,000 per year and a budgeted variable rate of $66 per hour of professional time. The normal usage of the legal services center is 2,925 hours per year for the Yuma office and 1,575 hours per year for the Bernalillo office. This corresponds to the expected usage for the coming year.

Required:

1. Determine the amount of legal services support center costs that should be assigned to each office. In your computations, carry ratio values out to two decimal places. Round your final answers to the nearest dollar if rounding is required.

2. Since the offices produce services, not tangible products, what purpose is served by allocating the budgeted costs?

3. Now, assume that during the year, the legal services center incurred actual fixed costs of $178,300 and actual variable costs of $254,740. It delivered 3,840 hours of professional time—2,270 hours to Yuma and 1,570 hours to Bernalillo.

Determine the amount of the legal services center's costs that should be allocated to each office.

Solutions

Expert Solution

Part-a

Computation of Amount of Legal Service Support Centre Cost to Each office
No. of Hour
(A)		 Fixed cost
(B=AX$38.89))		 Variable cost
(C=AX $66) )		 Allocated Cost
(B+C)
Yuma 2925 $113,753.25 $193,050.00 $306,803
Bernalillo 1575 $61,251.75 $103,950.00 $165,202

part-b:-

It Serves the same purpose as costing out tangible Product

Part-c

Computation of Amount of Legal Service Support Centre Cost to Each office
No. of Hour
(A)		 Fixed cost
(B=AX$46.43))		 Variable cost
(C=AX $66.34) )		 Allocated Cost
(B+C)
Yuma 2270 $105,396.10 $150,591.80 $255,988
Bernalillo 1570 $72,895.10 $104,153.80 $177,049

Working Note:-

Computation of Predetrmine Overhead Rate= Total Fixed Cost/ Total No. of Activity
(175000/(2925+1575 Hour)= $38.89/ Hour
Computation of Actual Fixed Overhead Rate= Total Fixed Cost/ Total No. of Activity
($178300/3840= $46.43
Computation of Actual Variable Overhead Rate= Total Variable Cost/ Total No. of Activity
$254740/3840= $66.34

ekkarill92 answered 1 hour ago
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