Question

Exercise 6-6

The Richetti Company’s copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of 4,873,400 copies:

Salaries (fixed)		$91,200
Employee benefits (fixed)		13,200
Depreciation of copy machines (fixed)		9,800
Utilities (fixed)		4,900
Paper (variable, 1 cent per copy)		48,734
Toner (variable, 1 cent per copy)		48,734

The costs are assigned to two cost 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, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.

Assuming 4,673,400 copies were made during the year, 2,542,200 for sales and 2,131,200 for administration, calculate the copy department costs allocated to sales and administration.

Cost allocated to Sales                 $?

Cost allocated to administration     $?

Exercise 6-9

OakRidge Metal Works received an offer from a big-box retail company to purchase 3,300 metal outdoor tables for $240 each. OakRidge Metal Works accountants determine that the following costs apply to the tables:

Direct material			$110
Direct labor			50
Manufacturing overhead			68
	Total		$228

Of the $68 of overhead, $13 is variable and $55 relates to fixed costs. The $55 of fixed overhead is allocated as $1.10 per direct labor dollar.

What will be the real effect on profit if the order is accepted?

Profit will (increase or decrease) and by how much $

Answer 1

6.6                             Cost allocated to

                                                   sales                      administration

Paper 25422    21312

Tonner                                      25422                           21312

Fix cost       -119100 is             47640                          71460

91200+13200+9800+4900-- fixed cost in ratio of 4 : 6

Total                                       98484                              114084

Ans 6.9 ------

In order to take extra order one have to check variable cost only , as fixed cost will remain same

in this case

Material - 110

Labour        50

overheda    13

Total variable cost is 173 rate above it is extra profit , profit will increase by 3300 *67 (240-173) = 221100