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    Allocating shared costs, preparing performance reports

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    Allocating shared costs, and preparing performance reports for responsibility centers.

    Musical Notes, Inc., manufactures and sells two different types of guitars: Blaster and Cool Blues. The two product lines share physical plant resource costs of $7,000 of which $1,000 is not traceable to either product line.

    Budget and actual data for each of the two product lines are as follows:

    Product lines
    Blaster caster Cool Blues
    Budgeted number of units sold 3,000 2,000
    Actual number of units sold 3,400 2,100
    Budgeted average sales price per unit $400 $600
    Actual average sales price per unit $390 $560
    Actual standard variable cost per unit $250 $300
    Budgeted traceable physical plant costs $3,000 $3,000
    Actual number of repair orders 20 10
    Actual hours on repair jobs 150 250

    Budgeted variable cost per unit were the same as actual for the month. The company is considering two methods of allocating the physical plant resource costs: number of repair orders or number of hours on job. Both guitar line managers report to the CEO of musical notes, Inc.


    1. Prepare a report allocating the traceable shared cost to each product line using the number of repair orders as the allocation base.
    2. Prepare a report allocating the traceable shared cost to each product line using the number of hours on the job as the allocation base.
    3. Prepare a performance report that shows the performance of the Blaster-caster Guitar division to the company as a whole, using the allocation bases prepared in requirements 2 of shared costs. Be sure to deduct the untraceable portion of the physical plant from the company total.

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    Solution Summary

    The solution allocates shared costs and prepares performance reports for Musical Notes, Inc