Allocation of Costs, accounting homework

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Discussions
To participate in the following discussions, go to this week’s Discussion link in the left navigation.

Allocation of Costs
 
Analyze
the following scenario: Jump Hospital currently allocates all
maintenance department costs based on departmental square feet. 
However, the manager of the pharmacy department has suggested that an
ABC approach be used for the portion of the maintenance department costs
that relate to repairing equipment.  Her contention is that the
pharmacy has relatively little equipment that breaks.  However, it must
subsidize many high-tech departments that require expensive equipment
repairs.  Using the tables below, calculate the maintenance cost
assigned to the pharmacy using the existing method and using an ABC
approach.  Clearly label your calculations in your analysis.  Respond to
at least two of your classmates’ postings.

Maintenance Costs

Routine Maintenance

Repairs

Total

Volume (Square Feet)

100,000

800

Labor Hours

10,000

4000

14,000

Labor Cost/Hour

$12.00

$18.00

$13.71

Supplies

$20,000

$80,000

$100,000

Administration

$15,000

 

Department Information

Pharmacy

All Other Departments

Total

Square Feet

2,000

98,000

100,000

Volume of Repairs

3

797

800

Hours of Repairs

6

3,994

4,000

Supplies Used for Repairs

$200

$79,800

$80,000

Investment Decision
 
Analyze
the
following scenario: Duncombe Village Golf Course is considering the
purchase of new equipment that will cost $1,200,000 if purchased today
and will generate the following cash disbursements and receipts.  Should
Duncombe pursue the investment if the cost of capital is 8 percent? 
Why?  Clearly label your calculations in your analysis.  You must
respond to at least two of your classmates’ postings to receive full
credit.

Year

Cash Receipts

Cash Disbursements

Net Cash Flow

1

1,000,000

500,000

500,000

2

925,000

475,000

450,000

3

800,000

450,000

350,000

4

750,000

430,000

320,000

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