question archive Peterborough Controls Ltd
Peterborough Controls Ltd
Subject:AccountingPrice:2.86 Bought15
Peterborough Controls Ltd. currently utilizes a manufacturing facility for? $250,000 per year. The facility is used at 75 percent capacity. The shipping department has proposed a plan in which it would utilize the other 25 percent plant capacity for the? company's shipping plus handling the shipping of several nearby businesses. The? company's consulting firm estimated that the overall costs of maintaining the space would increase by 10 percent.
The shipping manager is interested in the amount that would be allocated under the incremental method.
A.
?$25,000
B.
?$68,750
C.
?$62,500
D.
?$70,000
E.
?$24,000
Smith Company and Jones Company currently share an employee dining facility. Jones Company employs fewer people and believes that they should not be required to pay one−half of the? $300,000 costs incurred for the facility. An independent consulting firm stipulated that Smith Company could receive the same services for? $150,000 while? Jones's employees could receive comparable services for? $100,000.
What will be? Jones's allocated cost if the stand−alone method is? used?
A.
?$150,000
B.
?$83,333
C.
?$100,000
D.
?$120,000
E.
?$180,000
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Peterborough Controls Ltd.:
Option A. $25000 is correct answer.
Smith Company and Jones Company:
Option D. $120,000 is correct answer.
Step-by-step explanation
Under incremental cost allocation method, the additional cost incurred for providing services to another department is allocated to the service receiving department.
In this case, additional cost incurred by manufacturing department because service department is using the space, the additional cost will be allocated to service department.
Current Cost = 250000
Cost after utilisation of space by service department = 250000*(1+10%) = 275000
Increment in Cost = 275000-250000 = 25000
So, 25,000 will be allocated to service department.
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