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Cost Allocation Issues

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I am going to focus on the customers of my business and leave cost allocation issues to my accountants." Do you agree with this comment by a division president? Why?

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I do not agree with this comment by the division president. The division president does need to be concerned with both aspects, which include customers and cost allocations. The division president is ultimately responsible for the actions taking place inside of his/her respective division. While the division president ...

Solution Summary

This solution explains if the division president is justified in his/her comment regarding focusing solely on customers and leaving cost allocation issues to the accountants.

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Recommendations regarding Cinergy's coal allocation problem

Prepare a report that summarizes your recommendations regarding Cinergy's coal allocation problem. Be sure to include information and analysis for the following issues.

1. Determine how much coal to purchase from each of the mining companies and how it should be allocated to the generating units. What is the cost to purchase, deliver, and process the coal?
2. Compute the average cost of coal in cents per million BTUs for each generating unit (a measure of the cost of fuel for the generating units).
3. Compute the average number of BTUs per pound of coal received at each generating unit ( a measure of the energy efficiency of the coal received at each unit).
4. Suppose that Cinergy can purchase an additional 80,000 tons of coal from American Coal Sales as an "all or nothing deal", for $30 per ton. Should Cinergy purchase the additional 80,000 tons of coal?
5. Suppose that Cinergy learns that the energy content of the coal from Cyprus Amax is actually 13,000 BTUs per pound. Should Cinergy revise its procurement plan?
6. Cinergy has learned from its trading group that Cinergy can sell 50,000 megawatt hours of electricity over the grid (to other electricity suppliers) at a price of $30 per megawatt hour. Should Cinergy sell the electricity? If so, which generating units should produce the additional electricity?

See attached file for full problem description.

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