Direct cost allocation

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Homework review and correcting

Breakeven Analysis

1: Breakeven Analysis
The Bentley Student Association (BSA) is planning a fund raising event to support its student activities. The BSA is planning to hire the Dizzy Gillespie Heritage Band as entertainment. The Kennedy Museum was selected as the site for the event. The Museum will charge the BSA $600 for the use of its banquet room. Sylvia’s Restaurant was selected to cater the event. Sylvia’s Restaurant will charge the BSA a flat fee of $400 and a $20 per meal charge for each participant. The BSA plans to charge $50 per student or alumnus to attend the event and expects about 100 students or alumni will attend the event.

In the spreadsheet below:
1. Compute the breakeven cost for paying the Dizzy Gillespie Heritage Band. In other words, what is the maximum BSA can pay for entertainment and not lose money. You must show correct formulas and computations in each relevant cell in your Excel file when providing your answers. For instance, you must show the formula you used to obtain a breakeven quantity, etc.
2. Answer the questions provided.

Hint: be careful of flat fees vs. per person charges.

Revenue: # $
ticket sales 100 $ 50 $ 5,000
Expenses:
Venue 1 $ 600 $ 600
caterer 100 $ 20 $ 2,400
$ 3,000
entertainment $ 2,000
Questions:
1. Should the BSA pay the breakeven cost for entertainment? Why or why not? No
2. How can the BSA increase revenue for the fundraiser?
3. The BSA is considering raising the admission price to increase revenues for the fundraiser. What are the pros and cons of this action?
Answers
1 No. If BSA pays the cost they will not make any profit or revenue 3 Pros Increase of gains/ more profit
2 Increase the number of tickets or decrease the cost for the catering and entertainment services Cons It may cause a decrease in the number of students participating in the event

Cost Allocation

2: Cost Allocation
Using the cost information for the Waterville Fire Department provided below, complete a cost allocation table to allocate direct costs of Fire Inspection Service and General Administration Centers to the two mission centers, Fire Extinguishing and Fire Prevention, based on the direct method of cost allocation. You must show correct formulas and computations in Excel; no typing in of numbers. NOTE: When allocating costs, you will need to convert numbers or labor hours to percentages (e.g., each number of labor hours divided by relevant total number or labor hours).

Then answer the question provided below.

cost centers direct costs fire inspection (#) General Admin (labor hours)
Support:
Fire inspection service $ 150,000 380
general admin $ 67,550 68
Mission:
Fire extinguishing $ 378,890 134 996
Fire prevention $ 95,000 207 434
Total Cost $ 691,440 409 1,810
CONVERSION TO PERCENTAGES
cost centers direct costs fire inspection (#) General Admin (labor hours)
Support:
Fire inspection service $ 150,000 $ – 0 21%
general admin $ 67,550 17%
Mission: 84%
Fire extinguishing $ 378,890 33% 55% 79%
Fire prevention $ 95,000 51% 24%
Total Cost $ 691,440 100% 100%
cost centers direct costs fire inspection General Admin Total
Support:
Fire inspection service $ 150,000 $ (150,000)
general admin $ 67,550 $ (67,550)
Mission:
Fire extinguishing $ 378,890 $ 58,505 $ 47,052 $ 484,447
Fire prevention $ 95,000 $ 90,377 $ 20,503 $ 205,880
Total Cost $ 691,440 $ (1,118) $ 5 $ 690,327
Questions:
1. Do you feel this method is a fair and reasonable allocation? Why or why not?

PV Analysis

3: Present Value Analysis
The Education Association of Metro Orlando (EAMO) is a public service organization that provides after-school services for children. EAMO recently received a federal grant to improve after-school security for children. The grant amounts to $2 million and will be received over five years. It is designated to improve the communication networking system that monitors the traffic in three school districts. After a comprehensive review of all similar systems available on the market, EAMO identifies two systems that meet its specific need. One is EOP (Electronic Operating Patrol) and another is PMS (Pedestrian Monitoring System). The cost of both systems in the next five years, including the current year, is listed in the table below.

1. Assuming a 5 percent annual discount rate, what are the PVCs for EOP and PMS? Which system should EAMO purchase based on your PVC analysis?
2. Assuming a 10 percent annual discount rate, which system should EAMO purchase?
3. Assume that the life of EOP is six years and that of PMS is five years and the annual costs are the same as the previous years. Which system should EAMO purchase? Why?

Interest 5%
Cost Estimates for EOP and PMS 10%
Year EOP PMS
0 $ 1,500,000 $ 750,000
1 $ 100,000 $ 300,000
2 $ 100,000 $ 300,000
3 $ 100,000 $ 300,000
4 $ 100,000 $ 300,000
NPV 5% $1,854,595.05 $1,813,785.15

tc={8A98AF22-C86A-1E4A-8255-D1128B8CC7C9}: [Threaded comment]

Your version of Excel allows you to read this threaded comment; however, any edits to it will get removed if the file is opened in a newer version of Excel. Learn more: https://go.microsoft.com/fwlink/?linkid=870924

Comment:
This system should be purchase

NPV 10% $1,816,986.54 $1,700,959.63

tc={8E4A4EA1-BBC8-3B46-BAC4-2AEC18BCFD91}: [Threaded comment]

Your version of Excel allows you to read this threaded comment; however, any edits to it will get removed if the file is opened in a newer version of Excel. Learn more: https://go.microsoft.com/fwlink/?linkid=870924

Comment:
Best System

Cost Estimates for EOP and PMS
Year EOP PMS
0 $ 1,500,000 $ 750,000
1 $ 100,000 $ 300,000
2 $ 100,000 $ 300,000
3 $ 100,000 $ 300,000
4 $ 100,000 $ 300,000
5 $ 100,000 $ 300,000
6 $ 100,000
NPV 5% $2,007,569.21

tc={B3044D3F-C255-AE4E-A3F5-F801BD40CAA1}: [Threaded comment]

Your version of Excel allows you to read this threaded comment; however, any edits to it will get removed if the file is opened in a newer version of Excel. Learn more: https://go.microsoft.com/fwlink/?linkid=870924

Comment:
Better option. Cost is less even with a difference of one year


tc={8A98AF22-C86A-1E4A-8255-D1128B8CC7C9}: [Threaded comment]

Your version of Excel allows you to read this threaded comment; however, any edits to it will get removed if the file is opened in a newer version of Excel. Learn more: https://go.microsoft.com/fwlink/?linkid=870924

Comment:
This system should be purchase


tc={8E4A4EA1-BBC8-3B46-BAC4-2AEC18BCFD91}: [Threaded comment]

Your version of Excel allows you to read this threaded comment; however, any edits to it will get removed if the file is opened in a newer version of Excel. Learn more: https://go.microsoft.com/fwlink/?linkid=870924

Comment:
Best System

$2,048,843.00

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