Question

Sharp Motor Company has two operating divisions—an Auto Division and a Truck Division. The company has a cafeteria that serves the employees of both divisions. The costs of operating the cafeteria are budgeted at $77,000 per month plus $0.50 per meal served. The company pays all the cost of the meals.

The fixed costs of the cafeteria are determined by peak-period requirements. The Auto Division is responsible for 69% of the peak-period requirements, and the Truck Division is responsible for the other 31%.

For June, the Auto Division estimated it would need 80,000 meals served, and the Truck Division estimated it would need 50,000 meals served. However, due to unexpected layoffs of employees during the month, only 50,000 meals were served to the Auto Division. Another 50,000 meals were served to the Truck Division as planned.

Cost records in the cafeteria show that actual fixed costs for June totaled $82,000 and actual meal costs totaled $63,000.

Required:

1. How much cafeteria cost should be charged to each division for June?

2. Assume the company follows the practice of allocating all cafeteria costs incurred each month to the divisions in proportion to the number of meals served to each division during the month. On this basis, how much cost would be allocated to each division for June? (Round your intermediate calculations to 2 decimal places.)

Answer 1

GIVEN

THE COAT OF OPERATING CAFETERIA IS 77000 PLUS 0.50 PER MEAL

The Auto Division is responsible for 69%

Truck Division is responsible for the other 31%.

now actual expenses incurred fixed cost is 82000

for Auto Division 82000*69% =56580

For Truck Division 82000*31=25420

Actual MEal Expenses 63000

Auto Division 50000 & Truck Division 50000

that is meal expenses are equal to both of them

Auto Division 31500

truck Division 31500

Total Auto Division Expenses For Cafeteria =31500+56580 =88080

Total Yruck Division Expenses For Cafeteria =31500+25420 =56920

2.If allocating all cafeteria costs incurred each month to the divisions in proportion to the number of meals served to each division during the month

tThen Total Expenses = 82000+63000 = 145000

ratio between Auto & Truck

50000:50000

1:1

Auto Division Expenses For Cafeteria=145000*1/2 =72500

Truck Division Expenses For Cafeteria=145000*1/2 =72500