# Direct cost allocation

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?