Question

dl. US Check my work mode: This shows what is correct or incorrect for the work you have complee Problem 2-71 (Algo) Cost Allocation and Regulated Prices (LO 2-3) The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses Until recently, Evergreen had an exclusive franchise to provide this service in Imperial Falls, which meant that other waste collection firms could not operate legally in the city. The price per pound of waste collected was regulated at 20 percent above the average total cost of collection Cost data for the most recent year of operations for Evergreen are as follows $ Aaministrative cost Operating costs-trucks Other collection costs 416,000 1,360,000 Data on customers for the most recent year are as follows Households Businesses Number of customers waste collected (tons) 5,600 15,200 The City Council of Imperial Falls is considering allowing other private waste haulers to collect waste from businesses, but not from households Service to businesses from other waste collection forms would not be subject to price regulation. Based on information from neighboring cities, the price that other private waste collection forms will charge is estimated to be $0.04 per pound ($80 per ton (1 ton -2,000 pounds) Evergreen's CEO has approached the city council with a proposal to change the way costs are allocated to households and businesses, which will result in different rates for households and businesses. She proposes that administrative costs and truck operating costs be allocated based on the number of customers and the other collection costs be allocated based on pounds collected the total costs allocated to households would then be divided by the estimated number of pounds collected from households to determine the cost of collection. The rate would then be 20 percent above the cost. The rate for businesses would be determined using the same calculation Required: a. Based on cost data from the most recent year, what is the price per pound charged by Evergreen for waste collection under the current system the same rate for both types of customers)? b. Based on cost and waste data from the most recent year, what would be the price per pound charged to households and to businesses by Evergreen for waste collection if the CEO's proposal were accepted? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below.

Answer 1

Requirement a: The rate is 20 per cent above the average cost of collection: Total cost of collection = $416,000 + $1,360,000 + $336,000 = $2,112,000 Total waste collected (tons) = 5,600 + 15,200 = 20,800 tons = 41,600,000 pounds Average cost per pound = $2,112,000 - 41,600,000 pounds = $0.05077 per pound Price per pound = $0.05077 x 1.20 = $0.061 per pound E Requirement b: Households $ 90 $ 1,314,720 $ 0.1174 $ 0.1409 Business $ 90 $804,240 $ 0.0265 $0.0318 Allocated Cost per Customer Total Allocated Cost Average Allocated Cost Per Pound Price Workings: First, allocate costs to the two cost objects: households and businesses: Allocation of administrative costs and truck costs: Total costs = $416,000 + $1,360,000 = $1,776,000 Number of customers = 13,600 + 6,200 = 19,800 customers Allocated cost per customer $1,776,000 - 19,800 customers $90 per customer %3D

Allocation of other collection costs: Total costs = $336,000 Total waste collected (tons) = 5,600 + 15,200 = 20,800 tons Allocated cost per ton of waste = $336,000 - 20,800 tons $16.20 per ton + Allocation to customer types: Households Business Allocation of customer cost: $ 90 $ 90 Allocated cost per customer Number of customers Allocated cost 13,600 6,200 $ 558,000 $ 1,224,000 Allocation of other costs: Allocated cost per ton Number of tons Allocated cost Total allocated cost Total number of tons Number of pounds Average allocated cost per pound Price (1.20 x average cost) $ 16.20 5,600 90720 1314720 $ 16.20 15,200 246240 804240 5,600 15,200 11200000 30400000 0.1174 0.0265 0.1409 0.0318