1) Trustme Vehical Rental Corporation has two departments, Car Rental and Truck

Question

1)

Trustme Vehical Rental Corporation has two departments, Car Rental and Truck Rental. Central costs may be allocated to the two departments in various ways.

If advertising expense of $225,000 is allocated on the basis of sales, the amount allocated to the Truck Rental Department would be:

a) $75,000

b) $175,000

c) 112,500

d) $125,000

2)
Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc. must set up the machines and molds, Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different sytles of car.

Setup overhead costs cnsist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2004:

Thank you so much

Explanation / Answer

1) Total sales = 2,250,000 so 750,000 / 2,250,000 = 33.3% which means 33.33% of the advertising will be allocated to the Truck Rental Department. 225,000 x .33333 = $75,000

2) We spent $400 more in fixed overhead costs than we should have so the answer is $400 unfavorable

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