AirBorne is a small airline operating out of Boise, Idaho. Its three flights travel to Salt Lake City, Reno, and Portland. The owner of the airline wants to assess the full cost of operating each flight. As part of this assessment, the costs of two support departments (maintenance and bag- gage) must be allocated to the three flights. The two support departments that support all three flights are located in Boise (any maintenance or baggage costs at the destination airports are directly traceable to the individual flights). Budgeted and actual data for the year are as follows for the support departments and the three flights: Support Centers Flights Maintenance Baggage Salt Lake City Reno Portland Budgeted data: Fixed overhead $240,000 S150,000 $20,000 $18,000 S30,000 S 30,000 $ 5,000 2,000 Variable overhead S 64,000 S 6,000 $10,000 4,000 Hours of flight time* Number of passengers Actual data: 2,000 10,000 15,000 5,000 S156,000 S 33,000 Fixed overhead $235,000 $ 80,000 $22,000 $17,000 $11,000 S29,500 $ 6,200 1,800 Variable overhead S 5,800 Hours of flight time Number of passengers 4,200 2,500 8,000 16,000 6,000 *Normal sctivity levels. Round all allocation ratios and variable rates to four significant digits. Round all allocated amounts to the nearest dollar. Required: 1. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to determine the cost of operating each flight. 2. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to evaluate performance. Do any costs remain in the two support departments after the allocation? If so, how much? Explain.
AirBorne is a small airline operating out of Boise, Idaho. Its three flights travel to Salt Lake City, Reno, and Portland. The owner of the airline wants to assess the full cost of operating each flight. As part of this assessment, the costs of two support departments (maintenance and bag- gage) must be allocated to the three flights. The two support departments that support all three flights are located in Boise (any maintenance or baggage costs at the destination airports are directly traceable to the individual flights). Budgeted and actual data for the year are as follows for the support departments and the three flights: Support Centers Flights Maintenance Baggage Salt Lake City Reno Portland Budgeted data: Fixed overhead $240,000 S150,000 $20,000 $18,000 S30,000 S 30,000 $ 5,000 2,000 Variable overhead S 64,000 S 6,000 $10,000 4,000 Hours of flight time* Number of passengers Actual data: 2,000 10,000 15,000 5,000 S156,000 S 33,000 Fixed overhead $235,000 $ 80,000 $22,000 $17,000 $11,000 S29,500 $ 6,200 1,800 Variable overhead S 5,800 Hours of flight time Number of passengers 4,200 2,500 8,000 16,000 6,000 *Normal sctivity levels. Round all allocation ratios and variable rates to four significant digits. Round all allocated amounts to the nearest dollar. Required: 1. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to determine the cost of operating each flight. 2. Using the direct method, allocate the support service costs to each flight, assuming that the objective is to evaluate performance. Do any costs remain in the two support departments after the allocation? If so, how much? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:AirBorne is a small airline operating out of Boise, Idaho. Its three flights travel to Salt Lake
City, Reno, and Portland. The owner of the airline wants to assess the full cost of operating each
flight. As part of this assessment, the costs of two support departments (maintenance and bag-
gage) must be allocated to the three flights. The two support departments that support all three
flights are located in Boise (any maintenance or baggage costs at the destination airports are
directly traceable to the individual flights). Budgeted and actual data for the year are as follows
for the support departments and the three flights:
Support Centers
Flights
Maintenance
Baggage Salt Lake City
Reno
Portland
Budgeted data:
Fixed overhead
$240,000
S150,000
$20,000
$18,000
S30,000
S 30,000
$ 5,000
2,000
Variable overhead
S 64,000
S 6,000
$10,000
4,000
Hours of flight time*
Number of passengers
Actual data:
2,000
10,000
15,000
5,000
S156,000
S 33,000
Fixed overhead
$235,000
$ 80,000
$22,000
$17,000
$11,000
S29,500
$ 6,200
1,800
Variable overhead
S 5,800
Hours of flight time
Number of passengers
4,200
2,500
8,000
16,000
6,000
*Normal sctivity levels.
Round all allocation ratios and variable rates to four significant digits. Round all allocated
amounts to the nearest dollar.
Required:
1. Using the direct method, allocate the support service costs to each flight, assuming that the
objective is to determine the cost of operating each flight.
2. Using the direct method, allocate the support service costs to each flight, assuming that the
objective is to evaluate performance. Do any costs remain in the two support departments
after the allocation? If so, how much? Explain.
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