Question

Chapter 11 Problems Saved Help Save & Exit Submit Check my work 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 $88,000 per month plus $0.70 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 57% of the peak period requirements, and the Truck Division is responsible for the other 43%. points For June, the Auto Division estimated it would need 100,000 meals served, and the Truck Division estimated it would need 70,000 meals served. However, due to unexpected layoffs of employees during the month, only 70,000 meals were served to the Auto Division. Another 70,000 meals were served to the Truck Division as planned. eBook Cost records in the cafeteria show that actual fixed costs for June totaled $93,000 and actual meal costs totaled $114,000 Print 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.) References Auto Division Division Truck 1. Total cost charged 2. Total cost allocated

Answer 1

(1) Calculate the total cost charged :

Particulars	Auto Division	Truck Division
Variable cost:
$ 0.7 per meal	49,000 (70,000 * $0.70)	49,000 (70,000 *$ 0.7)
Fixed cost	50,160 (88,000 * 57%)	37,840 (88,000 * 43%)
Total cost charged	99,160	86,840

(2)Total actual cost is sum of the actual fixed costs and variable costs.Hence, the amount of actual cost

is $207,000($93,000 + $114,000).

The number of meals served is same for both divisions. Therefore 50% total actual cost should be allocated to division A and 50% actual cost should be allocated to division T.

The cost allocated to division A is $103,000($207,000* 0.5) and the ost allocated to division T is $103,000($207,000* 0.5) .