Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 15, Problem 15.24E
Allocation of common costs. Gordon Grimes, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days later, he received an invitation to make a presentation to a prospective client in Denver. He decided to combine his visits, traveling from Atlanta to Seattle, Seattle to Denver, and Denver to Atlanta.
Grimes received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular round-trip fares with no stopovers:
| Atlanta to Seattle | $600 |
| Atlanta to Denver | $400 |
Grimes paid $900 for his three-leg flight (Atlanta–Seattle, Seattle–Denver, Denver–Atlanta). In addition, he paid $45 each way ($90 total) for limousines from his home to Atlanta Airport and back when he returned.
- 1. How should Grimes allocate the $900 airfare between the clients in Seattle and Denver using (a) the stand-alone cost-allocation method, (b) the incremental cost-allocation method, and (c) the Shapley value method?
Required
- 2. Which method would you recommend Grimes use and why?
- 3. How should Grimes allocate the $90 limousine charges between the clients in Seattle and Denver?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Gordon Grimes, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days later, he received an invitation to make a presentation to a prospective client in Denver. He decided to combine his visits, traveling from Atlanta to Seattle, Seattle to Denver, and Denver to Atlanta. Grimes received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular round-trip fares with no stopovers:
Atlanta to Seattle = $600
Atlanta to Denver = $400
Grimes paid $900 for his three-leg flight (Atlanta–Seattle, Seattle–Denver, Denver–Atlanta). In addition, he paid $45 each way ($90 total) for limousines from his home to Atlanta Airport and back when he returned.
Q. How should Grimes allocate the $900 airfare between the clients in Seattle and Denver using (a) the…
Gordon Grimes, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days later, he received an invitation to make a presentation to a prospective client in Denver. He decided to combine his visits, traveling from Atlanta to Seattle, Seattle to Denver, and Denver to Atlanta. Grimes received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular round-trip fares with no stopovers:
Atlanta to Seattle = $600
Atlanta to Denver = $400
Grimes paid $900 for his three-leg flight (Atlanta–Seattle, Seattle–Denver, Denver–Atlanta). In addition, he paid $45 each way ($90 total) for limousines from his home to Atlanta Airport and back when he returned.
Q. How should Grimes allocate the $900 airfare between the clients in Seattle and Denver. Which method…
Penny is compiling a list of costs incurred so far on a project. She must categorize these costs so that she can present the amount of direct cost incurred. Which of the following should Penny include in this list?This type of question contains radio buttons and checkboxes for selection of options. Use Tab for navigation and Enter or space to select the option. option A Expense incurred in meeting the regulatory standards for the company option B Benefits for employees in the organization option C Travel expenses to the customer’s office option D Costs incurred for maintaining coffee stations around the office.
Chapter 15 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - What are the challenges of using the incremental...
Ch. 15 - Prob. 15.11QCh. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Single-rate versus dual-rate methods, support...Ch. 15 - Single-rate method, budgeted versus actual costs...Ch. 15 - Dual-rate method, budgeted versus actual costs and...Ch. 15 - Support-department cost allocation; direct and...Ch. 15 - Support-department cost allocation, reciprocal...Ch. 15 - Direct and step-down allocation. E-books, an...Ch. 15 - Reciprocal cost allocation (continuation of...Ch. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Allocation of common costs. Gordon Grimes, a...Ch. 15 - Revenue allocation, bundled products. Couture Corp...Ch. 15 - Allocation of common costs. Jim Dandy Auto Sales...Ch. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Fixed-cost allocation. Central University...Ch. 15 - Allocating costs of support departments; step-down...Ch. 15 - Support-department cost allocations;...Ch. 15 - Common costs. Tate Inc. and Booth Inc. are two...Ch. 15 - Prob. 15.33PCh. 15 - Support-department cost allocations;...Ch. 15 - Revenue allocation, bundled products. Boca Resorts...Ch. 15 - Support-department cost allocations; direct,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Aaron McKinney is a cost accountant for Majik Systems Inc. Martin Dodd, Vice President of Marketing, has asked Aaron to meet with representatives of Majik Systems’ major competitor to discuss product cost data. Martin indicates that the sharing of these data will enable Majik Sys-tems to determine a fair and equitable price for its products. Would it be ethical for Aaron to attend the meeting and share the relevant cost data? Explain your answer.arrow_forwardTed Lozano is a cost accountant for Company C. Fred Lopez, Vice President of Marketing, has asked Ted to meet with representatives of Company C’s major competitor to discuss product cost data. Fred indicates that the sharing of these data will enable Company C to determine a fair and equitable price for its products. Instructions: Would it be ethical for Ted to attend the meeting and share the relevant cost data? Explain your answer.arrow_forwardRay is a finance director in a public sector organization that has experienced difficulty attracting and retaining skilled staff. To assist in overcoming this problem, the board has engaged a consultant to recommend an improved benefits structure, to apply to all staff. The consultant has produced his report, and Ray has been asked to consider the proposed staff benefits structure, and make appropriate recommendations to the board. He study the report, conduct appropriate research, and assess the costs involved. He concludes that it will be necessary to increase staff costs, but believes these will be offset by the efficiencies brought about by recruiting and retaining high-quality staff. The report contains the following recommendations: Benefits should be related to the length of service of members of staff. After one year of continuous employment, a member of staff will qualify for private health insurance. Private health insurance should cover the member of staff and his or her…arrow_forward
- Ray is a finance director in a public sector organization that has experienced difficulty attracting and retaining skilled staff. To assist in overcoming this problem, the board has engaged a consultant to recommend an improved benefits structure, to apply to all staff. The consultant has produced his report, and Ray has been asked to consider the proposed staff benefits structure, and make appropriate recommendations to the board. He study the report, conduct appropriate research, and assess the costs involved. He concludes that it will be necessary to increase staff costs, but believes these will be offset by the efficiencies brought about by recruiting and retaining high-quality staff. The report contains the following recommendations: Benefits should be related to the length of service of members of staff. After one year of continuous employment, a member of staff will qualify for private health insurance. Private health insurance should cover the member of staff and his or her…arrow_forwardRay is a finance director in a public sector organization that has experienced difficulty attracting and retaining skilled staff. To assist in overcoming this problem, the board has engaged a consultant to recommend an improved benefits structure, to apply to all staff. The consultant has produced his report, and Ray has been asked to consider the proposed staff benefits structure, and make appropriate recommendations to the board. He study the report, conduct appropriate research, and assess the costs involved. He concludes that it will be necessary to increase staff costs, but believes these will be offset by the efficiencies brought about by recruiting and retaining high-quality staff. The report contains the following recommendations: Benefits should be related to the length of service of members of staff. After one year of continuous employment, a member of staff will qualify for private health insurance. Private health insurance should cover the member of staff and his or her…arrow_forwardAs a new graduate employee in a hospitality company, you are being introduced to the staff. The company owns several businesses. You have been informed that your initial job will require you to analyse the costing system of a restaurant (Café Deluxe) which is situated on a beach side tourist area. Your supervisor has recently attended a business conference where he was introduced with an improved costing system, Activity Based Costing. Café Deluxe presently uses traditional costing method and they want your help to explore the adoption of Activity based costing systems. In your first visit you have noticed that it is a sit-down restaurant and offers menu dining. The corporate marketing manager is considering introducing a buffet menu at Café. Required: a) Explain the types of decisions Café Deluxe faces under normal business circumstances and the associated management accounting information required by the Café management. b) Do you think the profitability of restaurant services…arrow_forward
- Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufacturessophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which isprivately owned, has approached a bank for a loan to help it finance its growth. The bank requires financialstatements before approving such a loan. You have been asked to help prepare the financial statements andwere given the following list of costs:1. Depreciation on salespersons’ cars.2. Rent on equipment used in the factory.3. Lubricants used for machine maintenance.4. Salaries of personnel who work in the finished goods warehouse.5. Soap and paper towels used by factory workers at the end of a shift.6. Factory supervisors’ salaries.7. Heat, water, and power consumed in the factory.8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.)9. Advertising costs.10. Workers’ compensation insurance for factory employees.11. Depreciation on chairs…arrow_forwardYou have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRs were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Suppose the appropriate cost of capital for each alternative is 10%. Using this…arrow_forwardYou have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): - Suppose the appropriate cost of capital for each alternative is 10%. Using this…arrow_forward
- You have just started your summer internship, and your boss asks you to review a recent analysis that was done to compare three alternative proposals to enhance the firm's manufacturing facility. You find that the prior analysis ranked the proposals according to their IRR, and recommended the highest IRR option, Proposal A. You are concerned and decide to redo the analysis using NPV to determine whether this recommendation was appropriate. But while you are confident the IRRS were computed correctly, it seems that some of the underlying data regarding the cash flows that were estimated for each proposal was not included in the report. For Proposal B, you cannot find information regarding the total initial investment that was required in Year 0. And for Proposal C, you cannot find the data regarding additional salvage value that will be recovered in Year 3. Here is the information you have (in $ millions): Proposal Year 1 Year 2 с IRR 60.0% 54.3% 53.6% Year 0 - $100 $30 $0 $37 $153 $206…arrow_forwardDanielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle's first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place: Jerrod: Danielle, you're new here, aren't you? Danielle: Yes, I am. Jerrod: Well, Danielle, I'm not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don't get it, where am I going to place our output? Danielle: Well, we need to get product into our customers' hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers…arrow_forwardYour organization has opened a walk-in clinic. A list of expenses has been given to the new staff accountant, Marvin, from the walk-in clinic manager and Marvin needs your help. Marvin wants you to help him identify whether costs shown in the table below are direct or indirect. Additionally, Marvin would like you to describe: 1. The difference between direct and indirect costs. 2. The "rule of thumb" for recognizing direct costs. 3. Update the direct and indirect columns by placing an X in the appropriate column. 4. The monetary total of direct and indirect costs. Item Cost Direct Indirect IT Salaries and Benefits $1,500 RN Salaries and Benefits $9,600 Utilities and Telephone $3,000 Carpets $1,000 Magazine Subscriptions $ 50 Vehicle Expense $1,775 Exam Table $5,500 End Tables $ 500 Coffee Tables $1,400 Facility Insurance $ 650 Staff Uniforms $1,200 Cleaning Supplies $ 200 Desk Lamps $ 150…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
GE McKinsey Matrix for SBU Strategies; Author: Wolters World;https://www.youtube.com/watch?v=FffD1Ze76JQ;License: Standard Youtube License