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Allocation of Fixed Costs McDonalds Corporation

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In this assignment, you are going to review your organization and its treatment of allocated costs.

Retrieve a report in the organization that allocates common costs to a division, product, or service. Recast that report with unallocated costs and comment on the usefulness of that revised report.

If you cannot identify specific actual amounts, make reasonable estimates for the report. When you make estimates indicate the method used to derive such numbers.

Your report should include

* The name and nature of the organization
* The activity and time period you used
* The inputs you used
* Your results
* Any implications from your results

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Solution Preview

See word document and excel file attached to see computations and to get the best formatting.

Here is a draft to get you started. I created a segment report from data found in the 2010 Annual Report for McDonalds and allocated the common costs based on three different cost drivers.

DRAFT (please re-write in your words, OTAs may not write assignments for students):

I used McDonalds, a fast-food restaurant chain with franchise and company-owned stores. The segment report below was constructed using store data and income statement data in the 2010 Annual Report (pages 7 and 26). I gathered revenues and store costs for each segment (company owned and franchise stores) and computed segment margin. This contains the costs directly attributable to the company-owned stores and the franchise stores. McDonalds clearly reports these costs separately.

The costs that are not broken down separately are the general, selling and administrative costs, the impairment loss and the other operating costs. I allocated these based on plausible allocation bases. The general, selling and administrative costs are allocated based on number of stores because the store requires attention, fee ...

Solution Summary

Your response is 601 words and gives you a segment margin report separating company-owned stores from franchise stores based on actual data in the 2010 Annual Report for McDonalds. The discussion interprets the segment report and indicates what knowledge might be lost without the allocations. Thoughts about whether all costs should be allocated are mentioned.

Similar Posting

Perform relevant cost analysis for Healthy Dairy Products

See attached case file.

Answer the following questions. Provide all necessary calculations to support your answers.

1) Why do you think that HDP selected pounds of butterfat as an allocation basis? Would you suggest a different allocation base?

2) Using cost estimates from the existing system presented in table 2, would you accept the McDonald's order? Why?

3) Perform a relevant cost analysis (i.e., determine the incremental cost per gallon) of the McDonald's order. What is the minimum price HDP can charge McDonald's and still increase net income by $.05 per gallon? Make any reasonable assumptions you deem necessary.

4) What is HDP's basic mix strategy? Is the McDonald's order consistent with HDP's strategy? Explain why or why not.

5. What are the consequences of the current allocation procedures? What suggestions, other than implementing activity-based costing (ABC), would you make to Mr. Smith about improving the product costing system used in determining target prices?

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