Should Bonded use the new material and improve quality?
Should Bonded use the new material and improve quality? Assume that inspection and testing costs of $132,000 per year will be reduced by $22,000 with the new materials. Fixed costs in the shaping department will remain the same whether 8,500 or 9,500 units are produced.
What other nonfinancial and qualitative factors should Bonded management consider in making the decision?
Assessment 3 Part 4: Allocation Methods Comparison
Allocate the cost to the service department using all three methods: direct, step, and reciprocal, then comment on your findings in a paragraph. Show all calculations.
Part 4 Scenario
Liberty Company has two service departments: administration and accounting, and two operating departments: domestic and international. Administration costs are allocated on the basis of employees and accounting costs are allocated on the basis of number of transactions. A summary of Liberty operations follows:
Liberty Company: Summary of Operations
Administration
Accounting
Domestic
International
Employees
—
25
45
180
Transactions
27,500
—
22,000
88,000
Department Direct Costs
$396,000
$158,400
$1,029,600
$3,960,000