Tots R Us
1. Compute the cost of a single preschool class and a single birthday party using the current cost system. Preschool Class Costs Birthday Party Costs
Building Related $216,000 Does not count
Salaries $50,000+$20,000*2=$90,000 $5,000*2=$10,000
Supplies & Foods $18,000 $3,000
Advertising Does not count Does not count
Total $324,000 $13,000
Unit Cost $270 $86.67
2. Would you recommend that TRU continue to allocate the building-related costs only to the preschool program? What alternative allocation method would you suggest? Justify your answer. Ignore consideration of excess capacity discussed in question 3 below for this answer. Please discuss any additional information that you feel is needed.
No, I would not recommend TRU continue to allocate the building-related costs only to the preschool program because it is not an accurate way to compute the actual costs for Birthday Party product. I would suggest TRU to use the activity based costing allocation method. To use this method, I would need additional information on: exact labor hours spent both on preschool class and birthday party, and the exact number of children who are attending preschool program and the birthday party.
3. Do you agree with TRU’s allocation method for salaries, supplies, and food? Why or why not? Be specific about any alternative allocation methods that you would consider
I agree with TRU’s allocation method for salaries, supplies, and food because it splits the cost of labor and supply for both preschool program and birthday party.
4. Do you agree with TRU’s decision not to allocate the cost of advertising? Why or why not? Be specific about any alternative allocation methods that you would consider.
I do not agree with TRU’s decision not to allocate the cost of advertising because it is an actual cost for promoting TRU’s products (preschool program and birthday party). However, to use the activity based cost allocation method, we need further information on how much the
Building Related $216,000 Does not count
Salaries $50,000+$20,000*2=$90,000 $5,000*2=$10,000
Supplies & Foods $18,000 $3,000
Advertising Does not count Does not count
Total $324,000 $13,000
Unit Cost $270 $86.67
2. Would you recommend that TRU continue to allocate the building-related costs only to the preschool program? What alternative allocation method would you suggest? Justify your answer. Ignore consideration of excess capacity discussed in question 3 below for this answer. Please discuss any additional information that you feel is needed.
No, I would not recommend TRU continue to allocate the building-related costs only to the preschool program because it is not an accurate way to compute the actual costs for Birthday Party product. I would suggest TRU to use the activity based costing allocation method. To use this method, I would need additional information on: exact labor hours spent both on preschool class and birthday party, and the exact number of children who are attending preschool program and the birthday party.
3. Do you agree with TRU’s allocation method for salaries, supplies, and food? Why or why not? Be specific about any alternative allocation methods that you would consider
I agree with TRU’s allocation method for salaries, supplies, and food because it splits the cost of labor and supply for both preschool program and birthday party.
4. Do you agree with TRU’s decision not to allocate the cost of advertising? Why or why not? Be specific about any alternative allocation methods that you would consider.
I do not agree with TRU’s decision not to allocate the cost of advertising because it is an actual cost for promoting TRU’s products (preschool program and birthday party). However, to use the activity based cost allocation method, we need further information on how much the