Princess Cruise Lines has the following service departments; concierge, valet, and maintenance

Princess Cruise Lines has the following service departments; concierge, valet, and maintenance. Expense for these departments are allocated to Mediterranean and Trans-Atlantic cruises. Expenses for the departments are totaled (both variable and fixed components are combined) and as follows:

Concierge $2,500,000
Valet $1,750,000
Maintenance $4,250,000

The sea miles logged are 6,000,000 for the Mediterranean and 18,000,000 for the Trans-
Atlantic voyages.

Based upon the sea miles logged, allocate the service department costs.

Click here for the solution: Princess Cruise Lines has the following service departments; concierge, valet, and maintenance

Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance

Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance. Costs of these departments are allocated to two revenue producing departments, domestic and international flights. Costs for the service departments are not separated into fixed and variable and the totals are as follows:

Ticketing $4,000,000
Baggage handling $2,000,000
Aircraft maintenance $6,000,000

Air miles are as follows: Domestic 5,000,000
International 20,000,000

(a) Allocate the service department costs based on air miles.
(b) Evaluate World Airlines use of air miles as a basis for allocation. Do you think the cause-and-effect relationship is strong?
(c) Suggest alternative methods to allocate the service department costs.

Click here for the solution: Pacific Airlines has three service departments; ticketing, baggage handling, and aircraft maintenance

QwikRepairs has over 200 auto-maintenance service outlets nationwide

E6-7 QwikRepairs has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repairs: Oil change related services represent 70% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 30% of its sales and provides a 60% contribution margin ratio. The company’s fixed costs are $16,000 (that is, $80,000 per service outlet).

Instructions
a) Calculate the dollar amount of each type of service that the company must provide in order to break even.
b) The company has a desired net income of $60,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

Click here for the solution: QwikRepairs has over 200 auto-maintenance service outlets nationwide

3-46 (Job bid price, direct, sequential, and reciprocal allocations) Small Pump Manufacturer

3-46 (Job bid price, direct, sequential, and reciprocal allocations) Small Pump Manufacturer Service Departments Production Departments Item Maintenance Power Casting Assembly Support Costs $750,000 $450,000 $150,000 $110,000 Machine Hours 0 80000 80000 40000 Kilowatt-hours 40000 0 200000 160000 Direct Labor Hours 0 0 100000 60000 Management allocates maintenance department costs using machine hours Management allocates power deptepartment costs using kilowatt hours Separate cost driver rates are determined on machine hours basis for casting dept and on direct labor hours basis for assembly dept 1 machine hour per pump manufacture in casting department .5 labor hours to assemble pump in assembly dept Direct labor and material costs = $32.00 per pump Potential Sell: 2 year contract to purchase 1000 pumps every month Add 25% markup to full manufacturing cost to determine bid BID PRICE for. a) Direct Method b) Sequential Method begins by allocating maintenance department costs c) Reciprocal Method
Click here for the solution: 3-46 (Job bid price, direct, sequential, and reciprocal allocations) Small Pump Manufacturer