Q.19-4SE_1 - Horngren'S Financial And Managerial Accounting

Question

Bubba and Danny are college friends planning a skiing trip to Killington before the New Year. They estimated the following for the trip:

 

                  Estimated                                                              Activity Allocation

                      Costs                    Allocation Base                  Bubba          Danny

Food              \( 400              Pounds of food eaten                  24                 26

Skiing               300              Number of lift tickets                     2                   0

Lodging            280              Number of nights                           2                   2

                       \) 980

 

Requirements

1. Bubba suggests that the costs be shared equally. Calculate the amount each person would pay.

Step-by-Step Solution

Answer

Each person should pay $490.

Overhead allocation

Overhead allocation is the apportionment of cost to each activity or process or person based on a certain ratio. This ratio can be allocation base or can be in any predetermined ratio.

In costing, overhead allocation is important to get the appropriate amount of full cost and to determine the price.

Allocation of overhead in the given case

As given, Bubba suggests sharing the coat equally. So the total amount would be shared in the ratio of 1:2 to each person. 

$$\begin{gathered} \mathbf{cost}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{each}\mathbf{ }\mathbf{person}\mathbf{ }\mathbf{=}\mathbf{ }\frac{\mathbf{total}\mathbf{ }\mathbf{cost}}{\mathbf{2}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\mathbf{\$}\mathbf{980}}{\mathbf{2}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{490} \end{gathered}$$