Water Purification Cost Allocation
Cost Allocation at Water Purification Group
Mary May pushed the door to her office thinking about her plan to enrol her daughter for a medical degree at a private university. The private university is the only institution of higher learning that her daughter can apply for, considering her high school results. Mary sat down at her table and a smile came to her lips. Her financial situation will definitely improve after the company, Bio-Organics, announce this year’s bonuses. Project ORG7 she was working on is already in the completion stage and as a project manager, she was sure Project ORG7 will bring in the targeted profits. With that in mind, Mary pulled open a file marked ORG7 from her drawer. The file was submitted by her secretary yesterday, just before Mary left the office. Mary’s smile abruptly left her face when the latest cost sheet was staring at her from the file. Clearly written in the cost sheet was an amount of RM2,000,000 for R&D expenditure related to Project ORG7. A year ago, Mary has approved R&D expenditure of RM5,000,000 for Project ORG7 and the final RM2,000,000 was only recently incurred. Mary quickly scanned Project ORG7 cost documents and disappointedly realised the RM2,000,000 will reduce Project ORG7’s profits to a negative!
BIO-ORGANICS
The company was founded in 1988 and had obtained the largest market share in the large-scale provision of clean water. Bio-Organics had developed membrane-based and other advanced technology systems for municipal and industrial markets. These products were developed and marketed by the Water Purification Group. The technology is used for desalination and wastewater treatment as well as the production of highly pure water. These markets currently account for about 52% of Bio-Organics’s revenues and 37% of total earnings. The other two major business areas include operation or ownership/operation of water treatment facilities for customers (26% of revenues and 43% of profits) and a consumer
Mary May pushed the door to her office thinking about her plan to enrol her daughter for a medical degree at a private university. The private university is the only institution of higher learning that her daughter can apply for, considering her high school results. Mary sat down at her table and a smile came to her lips. Her financial situation will definitely improve after the company, Bio-Organics, announce this year’s bonuses. Project ORG7 she was working on is already in the completion stage and as a project manager, she was sure Project ORG7 will bring in the targeted profits. With that in mind, Mary pulled open a file marked ORG7 from her drawer. The file was submitted by her secretary yesterday, just before Mary left the office. Mary’s smile abruptly left her face when the latest cost sheet was staring at her from the file. Clearly written in the cost sheet was an amount of RM2,000,000 for R&D expenditure related to Project ORG7. A year ago, Mary has approved R&D expenditure of RM5,000,000 for Project ORG7 and the final RM2,000,000 was only recently incurred. Mary quickly scanned Project ORG7 cost documents and disappointedly realised the RM2,000,000 will reduce Project ORG7’s profits to a negative!
BIO-ORGANICS
The company was founded in 1988 and had obtained the largest market share in the large-scale provision of clean water. Bio-Organics had developed membrane-based and other advanced technology systems for municipal and industrial markets. These products were developed and marketed by the Water Purification Group. The technology is used for desalination and wastewater treatment as well as the production of highly pure water. These markets currently account for about 52% of Bio-Organics’s revenues and 37% of total earnings. The other two major business areas include operation or ownership/operation of water treatment facilities for customers (26% of revenues and 43% of profits) and a consumer