Describe how the dual-rate method is useful to division managers in decision making.
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Gordon Grimes, a self-employed consultant near Atlanta, received an invitation to visit a prospective client in Seattle. A few days later, he received an invitation to make a presentation to a prospective client in Denver. He decided to combine his visits, traveling from Atlanta to Seattle, Seattle to Denver, and Denver to Atlanta. Grimes received offers for his consulting services from both companies. Upon his return, he decided to accept the engagement in Denver. He is puzzled over how to allocate his travel costs between the two clients. He has collected the following data for regular round-trip fares with no stopovers: Grimes paid \(\$ 900\) for his three-leg flight (Atlanta-Seattle, Seattle- Denver, Denver-Atlanta). In addition, he paid \(\$ 45\) each way \((\$ 90\) total ) for limousines from his home to Atlanta Airport and back when he returned. 1\. How should Grimes allocate the \(\$ 900\) airfare between the clients in Seattle and Denver using (a) the stand-alone cost-allocation method, (b) the incremental cost-allocation method, and (c) the Shapley value method? 2\. Which method would you recommend Grimes use and why? 3\. How should Grimes allocate the \(\$ 90\) limousine charges between the clients in Seattle and Denver?
Distinguish between two methods of allocating common costs.
What is conceptually the most defensible method for allocating support- department costs? Why?
E-books, an online book retailer, has two operating departments corporate sales and consumer sales-and two support departments - human resources and information systems. Each sales department conducts merchandising and marketing operations independently. E-books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data are available for September 2017 : 1\. Allocate the support departments' costs to the operating departments using the direct method. 2\. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method. 3\. How could you have ranked the support departments differently?
Distinguish between the stand-alone and the incremental revenue-allocation methods.
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