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    Cost allocation

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    Cannata Corporation has two operating divisions-a North Division and a South Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $32 per shipment. The Logistics Department's fixed costs are budgeted at $372,300 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

    % of Peak Period Budgeted
    Capacity Required Shipments
    North Division 25% 1,700
    South Division 75% 5,600

    1. At the end of the year, actual Logistics Department variable costs totaled $335,000 and fixed costs totaled $382,850. The North Division had a total of 4,700 shipments and the South Division had a total of 5,300 shipments for the year.

    a. Prepare a report showing how much of the Logistics Department's costs should be charged to each of the operating divisions at the end of the year.
    b. How much of the actual Logistics Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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    Solution Summary

    The solution explains how to calculate the amount of costs that should be chared to operating departments and the costs that should not be charged