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Cost allocation

Chad Company has a domestic division and an international division and a travel
department which supports the employees in both divisions. The fixed costs of the travel department ($405,000) are allocated based on the number of employees in each division. There are 210 employees in the domestic division and 70 employees in the international division. The variable costs of the travel department are allocated to the divisions based on the number of reservations made, at a rate of $15 per reservation.

If the domestic division requires 1,500 reservations and the international division requires 2,000 reservations, calculate the amount of travel department costs that will be allocated to each of the divisions.

Solution Preview

Response:
Step 1: allocation of fixed cost
Fixed cost = $405,000
Fixed cost s allocated based on number of employees in a division
Total number of employees = 210 + 70 = 280

Fixed cost allocated to domestic division = (number of employees in domestic division/total number ...

Solution Summary

Solution shows the calculations of the amount of travel department costs that will be allocated to each of the divisions.

$2.19