Candy is having a meeting with Sharon, a member of the management team at the retail company where they are both employed. They are currently discussing the way that the purchasing department's costs are being handled. Candy believes that these costs should be considered a unit-level cost and allocated based upon the number of units needed as that dictates what the department purchases. Sharon believes that the costs should be allocated on a batch level based on the number of purchase orders used for each area. Candy has compiled some data on both cost drivers and the total costs for the purchasing department.
Their one product line requires 62 purchase orders this year in order to purchase 27,400 units.
(If required, round calculations to two decimal places.)
a. How much of the purchasing cost would be allocated under Candy's unit-level assumption?
b. How much of the purchasing cost would be allocated under Sharon's batch-level assumption?
c. Which method would you recommend that Candy and Sharon use for this retail company?

Question

Candy is having a meeting with Sharon, a member of the management team at the retail company where they are both employed. They are currently discussing the way that the purchasing department's costs are being handled. Candy believes that these costs should be considered a unit-level cost and allocated based upon the number of units needed as that dictates what the department purchases. Sharon believes that the costs should be allocated on a batch level based on the number of purchase orders used for each area. Candy has compiled some data on both cost drivers and the total costs for the purchasing department.
  Their one product line requires 62 purchase orders this year in order to purchase 27,400 units.
(If required, round calculations to two decimal places.)
a. How much of the purchasing cost would be allocated under Candy's unit-level assumption?
b. How much of the purchasing cost would be allocated under Sharon's batch-level assumption?
c. Which method would you recommend that Candy and Sharon use for this retail company?

Quizplus · Accepted Answer

The Answer of Candy is having a meeting with Sharon, a member of the management team at the retail company where they are both employed. They are currently discussing the way that the purchasing department's costs are being handled. Candy believes that these costs should be considered a unit-level cost and allocated based upon the number of units needed as that dictates what the department purchases. Sharon believes that the costs should be allocated on a batch level based on the number of purchase orders used for each area. Candy has compiled some data on both cost drivers and the total costs for the purchasing department.
  Their one product line requires 62 purchase orders this year in order to purchase 27,400 units.
(If required, round calculations to two decimal places.)
a. How much of the purchasing cost would be allocated under Candy's unit-level assumption?
b. How much of the purchasing cost would be allocated under Sharon's batch-level assumption?
c. Which method would you recommend that Candy and Sharon use for this retail company?

Candy Is Having a Meeting with Sharon, a Member of the Management