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Monitor
$ 260
$ 195
($ 65)
–25%
Color laser printer
$ 600
$ 450
($150)
–25%
Total
$2,000
$1,500
($400)
Furthermore, the cost-based method might actually discourage cost efficiencies. Increasing the
cost per unit of product relative to other products would give the division a greater share of the
overall revenue.
Last, under the physical unit allocation method, the motivation of the divisional managers to
produce for the bundled purchase would likely change significantly. The PC Tower Division
would see the largest decrease in revenue and the Monitor Division would see the largest
increase in revenue. The PC Tower Division would have much less incentive to produce for the
bundled purchase, if the divisional revenue were cut from $1,140 to $500 dollars per unit. The
Monitor Division would be highly motivated to produce for the bundled purchase, as the sales
revenue per unit would go from $260 to $500. This method is also not the most reasonable
because the relative price of $500 for each component is not representative of the amount
individual price customers are willing to pay for each of the components independently.
15-34 (40-60 min.) Support-department cost allocations: single-department cost pools;
direct, step-down, and reciprocal methods.
Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional
athletes. The company has two product lines (clothing and shoes), which are produced in separate
manufacturing facilities; however, both manufacturing facilities share the same support services
for information technology and human resources. The following shows total costs for each
manufacturing facility and for each support department.
