Reference no: EM132760973

Problem - Support activity cost allocation - Kizzle's Crepes Co. produces world famous crepes. The company's crepes are produced via its Mixing and Cooking activities, which both rely on the Janitorial and Maintenance activities. Kizzle's management knows the most practical driver of Janitorial costs is square feet, but is uncertain whether to allocate Maintenance costs based on asset value of production equipment, number of service calls, or machine hours. Kizzle's management estimates that the Cooking and Mixing activities each require about twice as much space as the Maintenance activity.

1. What factors should Kizzle's management consider in choosing the driver to use for the allocation of Maintenance costs? Of the three potential drivers mentioned in the problem, which one(s) should Kizzle's most likely not use?

2. Assume that Kizzle's management allocates Maintenance costs based on the number of service calls. Further assume that in a given period, the Janitorial, Mixing, and Cooking activities incur 16, 40, and 24 service calls, respectively, and that the Janitorial and Maintenance costs of that period are $3,000 and $4,200, respectively. Determine the total costs allocated from each support activity to the other three activities using the reciprocal services method.

3. Kizzle's Crepes Co. is expanding rapidly due to its exponentially growing sales and popularity. Kizzle's management is worried that as the company expands, its current method of support activity cost allocation, the reciprocal services method, may become too burdensome. Is this true? If so, what alternative method should Kizzle's Crepes Co. use as it expands?