Why is the selection of the cost driver

Assignment Help Managerial Accounting

Reference no: EM13174362

Through this assignment you will apply the concepts of direct and indirect costs, demonstrating the importance of allocating indirect costs within an organization. The decision for allocating the indirect costs will be completed through the selection of cost drivers and calculations of the allocation rate for each cost. You will develop a sample Contribution Margin Income Statement and explain how this statement differs from the Standard Income Statement used by companies.

Question: How does a contribution margin income statement differ from the income statement used in financial reporting?

Question: If a company is trying to find the break-even point for multiple products that sell simultaneously, what consideration must be taken into account?

Part A:

	Genie Department (direct costs)	Strike Department (direct costs)	Indirect Costs	Total Costs
Salary of V. P. of Game Division	$100,000	$100,000		$200,000
Materials for Genie department				$0
Materials for Strike department				$0
Labor for Genie department				$0
Labor for Strike department				$0
General factorywide utilities			$50,000	$50,000
Production supplies			$31,000	$31,000
Total costs	$100,000	$100,000	$81,000	$281,000

The following costs were incurred for developing two games: Genie & Strike. The Vice President's salary is $200,000 per year. The VP manages both Genie & Strike. Materials for the Genie game cost $270,000 and materials for the Strike game were $350,000. The factory labor for Genie was $400,000 and Strike's labor was $600,000. There were also utilities at $50,000 and supplies costing $31,000. You will be deciding which costs are considered direct and indirect. Allocate the indirect costs in Part B, C, & D. For Part E, summarize the total costs for each department.

The total square footage for the factory is 20,000 square feet. The Genie department uses 8,000 square feet, and the Strike department uses 12,000 square feet.

Part B:

Instructions - List all indirect costs, decide your cost driver, and calculate the allocation rate
Indirect Cost Category (Hint: Not all costs above are considered indirect costs)	Indirect Costs (Amount)	Cost Driver	Allocation Rate (Amount)	Per (Cost Driver)



Total Indirect Costs	$0

Instructions - List all indirect costs, decide your cost driver, and calculate the allocation rateQuestion: Why is the selection of the Cost Driver so important?

Part C:

Instructions - Allocate the costs for the Genie Department
Indirect Cost Category	Allocation Rate		Weight of the Cost Driver	Amount allocated to Genie
0	$0.00	0		$0
0	$0.00	0		$0
0	$0.00	0		$0

Part D:
Instructions - Allocate the costs for the Strike Department
Indirect Cost Category	Allocation Rate		Weight of the Cost Driver	Amount allocated to Strike
0	$0.00	0		$0
0	$0.00	0		$0
0	$0.00	0		$0

Part E:
Instructions - Complete the total costs for each department
Cost Category	Genie Department	Strike Department	Total
VP of Game Division Salary			$0
Materials Costs			$0
Labor Costs			$0
Utilities			$0
Supplies			$0
Total	$0	$0	$0

Question: Why would a company choose to split up costs in this manner rather than just dividing up costs equally among the games?

Part F:

Revenues for StarPlus, Inc. were $4,000,000. The Cost of Goods Sold Expenses were $1,450,000. The Selling, General, & Administrative Expenses were $451,000 Assume the Variable Costs are Materials and Labor. The VP Salary, Utilities, & Supplies are considered Fixed Costs.
Instructions - Create a simple Contribution Margin Income Statement for StarPlus, Inc.

Reference no: EM13174362

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