Cost Accounting Assignment - Cost Allocation

Cost Accounting Assignment

26th January 2014

Chapter one

Question 1

Unit costs to Weltferien considering a) 200 , b) 250 and c) 300 passengers.

For determining the Unit Cost we devided the total cost (€60.000.- cost of each round trip flight) in the number of passengers (Cost driver)

a).- 60.000/200 = 300 unit cost (cost of round trip flight per passenger

b).- 60.000/250 = 240 Unit Cost

c).- 60.000/300 = 200 Unit Cost

Question 2

These unit costs figure give as different scenarios of Unit Costs according to changes in the Cost Drive (number of passengers per flight)

We demonstrate this by calculating the Unit Cost when predicting carrying 4000 passengers on 15 scheduled round trips.

15 (number of flights) x € 60.000 (cost of flight) = € 900.000 (total cost of 15 flights)

€ 90.000 / 4000 (predicted total passengers) = 266,67 (average passengers per flight)

€ 60.000 (cost per flight) / 266,67 = 224,99 (predicted unit cost when having 4000 passengers in 15 flights)

900.000 (total cost of 15 flights) /4000 (predicted passengers) = € 225 (unit cost)

Nevertheless, unit costs from question 1 are not useful for calculating the total costs of the 15 flights, because when multiplying the unit costs of Q1 with the 4000 expected future passangers the total costs are different from the fixed total cost of € 60.000 per flight

Chapter Two

Question 1

News Movies Sport

Rolf + 0 -

Ulrich 0 - +

Ilse - + 0

Criteria to be used for allocating the € 70 between the three friends:

Question 1

We identified two possible criteria. The first one considers who is the provider of the infrastructure for fullfiling the entertainment needs. Under this criterion, and, considering that Rolf is the owner of the house, furniture and TV, his friends Ulrich and Ilse should be the ones paying for the TV service.

The second criteria is based on the interests of the three friends and how the TV package fullfills these interests and desired utility.

Under this criterion, the € 70 can be divided in equal parts of € 23,3 or divided proportionally according to how much does each service cost in the € 70 total bill.

Question 2

For allocating the € 70 between the three friends we can use a Single Rate or Dual Rate allocation method.

Allocation according to Single Rate Method.

Total costs / number of people = 70/3 = 23,33 per unit

This method assumes that each of the friends is equally satisfied.

Allocation according to Dual Rate Method.

In this method we want to know what is exactly the cost for each of the cost objects

First we determine the individual price of each of the TV services included in the package. For that we analized the relation between the individual service packages and we then applied that ratio to the total cost of € 70

TV Service Single Service Package Price Ratio between individual prices and total Cost allocation of each cost object

Basic News 32 36,8% € 25,76

Premium Movies 25 25,7% € 20,09

Premium Sports 30 34,48% €

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