Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
5.21 Departmental cost allocation, university computer-service centre. (20–30 min)
1 Each school would be allocated half the €100,000: HS (100/200)
×
€100,000 = €50,000 Engineering (100/200)
×
€100,000 = €50,000 The allocation of the €10,000 costs of inefficiency seems unjustified because the consuming departments have to bear another department’s cost of inefficiency. The system provides no incentive to the service department manager to control operating costs. An improvement would be to use budgeted unit prices (at least) and where feasible, budgeted total prices for various kinds of work based on flexible budgets and standards. In this way, the consuming department managers will know in advance that inefficiencies
will be borne by the supplier, not the consumer.
2 Total costs incurred €80,000 + 150(€100) = €95,000 HS (50/150)
×
€95,000 = €31,667 Engineering (100/150)
×
€95,000 = €63,333 Note that the unit cost per hour has risen from €100,000 ÷ 200 = €500 in requirement
1 to €95,000 ÷ 150 = €633 in requirement 2. Engineering’s
total cost rose from €50,000 to €63,333, an increase of 26.7% solely because H&S’s usage declined.
3 Planned long-run usage 180 + 120 = 300 hours
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