Lackawanna Community College has three divisions: Liberal Arts, Sciences, and Business Administration. The college’s comptroller is trying to decide how to allocate the costs of the Admissions Department, the Registrar’s Department, and the Computer Services Department. The comptroller has compiled the following data for the year just ended.
Required:
- 1. For each department, choose an allocation base and distribute the departmental costs to the college’s three divisions. Justify your choice of an allocation base.
- 2. Would you have preferred a different allocation base than those available using the data compiled by the comptroller? Why?
- 3. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: the costs incurred by the departments were $120,000, $160,000, and $360,000, for Admissions, Registrar, and Computer Services, respectively.
1.
Choose an allocation base and distribute the departmental costs to the three divisions of the college for each department.
Explanation of Solution
Cost Allocation: The process of assigning the cost to the cost object is cost allocation. The cost allocation is done by the accountant to allocate the manufacturing overhead cost to different divisions.
Cost allocation base: An allocation base is the measure of activity, economic characteristic or physical characteristic that is related with responsibility centers.
Select an allocation base and distribute the departmental costs to the three divisions of the college for each department:
Division | ||||
Department and allocation base | Liberal arts | Sciences | Business administration | Total cost allocated |
Admissions (enrollment) | (1)$36,000 | (4)$$28,800 | (7)$$25,200 | $90,000 |
Registrar(credit hours) | (2)$56,250 | (5)$$52,500 | (8)$$41,250 | $150,000 |
Computer Services(courses requiringcomputer) | (3)$64,000 | (6)$$128,000 | (9)$$128,000 | $320,000 |
Table (1)
- The costs for admissions department are assigned on the basis of enrollment. If the numbers of students enrolled are more in a division then more admissions are there to process.
- The cost for registrar department is assigned on the basis of credit hours. Higher the number of credit hours, the more course registrations are there to process.
- The cost for computer science department is assigned on the basis of the number of courses requiring computer work. Higher the number of computer-intensive courses, higher will be the demands placed on the computer service department.
Working notes:
(1)Calculate the admissions department’s distribution of costs for Division Liberal arts:
(2)Calculate the registrar department’s distribution of costs for Division Liberal arts:
(3)Calculate the computer service department’s distribution of costs for Division Liberal arts:
(4)Calculate the admissions department’s distribution of costs for Division science:
(5)Calculate the registrar department’s distribution of costs for Division science:
(6)Calculate the computer service department’s distribution of costs for Division science:
(7)Calculate the admissions department’s distribution of costs for Division Business administration:
(8)Calculate the registrar department’s distribution of costs for Division Business administration:
(9)Calculate the computer service department’s distribution of costs for Division Business administration:
2.
State whether different allocation base can be preferred than those that are available using the data compiled by the computer.
Explanation of Solution
- The number of courses is possibly the most appropriate allocation base for the registrar’s costs. Costs in this department are determined by processing course registration and not driven by the credit hours. Four credit hours do not need any more registration effort than a three credit course.
- The requirement of estimated amount of computer time is possibly the most appropriate allocation base for the computer science department. Two different courses requiring computer work can place difference demands on the department of computer science.
3.
Prepare excel to show the change in the information.
Explanation of Solution
Prepare excel to show the change in the information:
Figure (1)
Working note:
Figure (2)
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