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    Cost drivers; Compute allocation rate for indirect cost

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    The owner of the gym Mr. Ripple, has notified division managers that their job performance evaluations will by highly influenced by their ability to minimize costs. The gym has three division weight lifting, aerobics and spinning. The owner has formulated a report showing how much it cost to operate each of three divisions last year. In preparing the report, Mr. Ripple identified several indirect, costs that must be allocated among the divisions. These indirect cost are $4,200 of laundry expense $48,000 of supplies, $350,000 office rent, $50,000 of janitorial services, and $120,000 for administrative salaries. To provide a reasonably accurate cost allocation, Mr. Ripple has identified several potential cost drivers.
    These drivers and their association with each division follow.

    Accounting

    Cost Drivers Weight Lifting Aerobics Spinning Total
    # of participants 26 16 14 56
    # of instructors 10 8 6 24
    Square feet 12,000 6,000 7,000 25,000
    # of staff 2 2 1 5

    Required;

    a-Identify the appropriate cost objects.
    b-Identify the most appropriate for each indirect cost, and compute the allocation rate for assigning each indirect cost to cost objects.

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    Solution Preview

    The owner of the gym Mr. Ripple, has notified division managers that their job performance evaluations will by highly influenced by their ability to minimize costs. The gym has three division weight lifting, aerobics and spinning. The owner has formulated a report showing how much it cost to operate each of three divisions last year. In preparing the report, Mr. Ripple identified several indirect, costs that must be allocated among the divisions. These indirect cost are ...

    Solution Summary

    The solution identifies cost drivers and computes allocation rate for indirect cost. The cost objectives are given.

    $2.49

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