BP Services Is a Large Company That Sells Harley Davidson

question 84

Essay

BP Services is a large company that sells Harley Davidson Motorcycles. The company is organized with two operating departments, Premier and Elite. The Premier department sells only to clients who have custom ordered a bike. The Elite department sells bikes that are already manufactured. Jan Socha is in charge of the Media department that develops advertising booklets for the two product lines. The Media department's budget for the upcoming year showed budgeted fixed costs of $80,000 plus variable costs of $1.00 per booklet. At the beginning of the year, Premier budgeted its usage at 4,000 booklets, and Elite budgeted its usage at 10,000 booklets. However, actual usage was 3,000 booklets and 8,000 booklets requested by Premier and Elite, respectively.
a)Under the single-rate method, what are the total budgeted costs for the Media department?
b)Under the dual-rate method, what amount of cost is allocated to Premier if fixed costs are allocated based on budgeted usage and variable costs are allocated based on actual usage?
c)Under the dual-rate method, what amount of cost is allocated to Premier if fixed costs are allocated based on budgeted usage and variable costs are allocated based on budgeted usage?
d)Which dual-rate method-the one in part (b)or the one in part (c)-would provide better incentives for using the company's resources efficiently? Explain.

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Definitions:

Capitated Payment

A payment arrangement in healthcare where a provider is paid a set amount for each enrolled person assigned to them, regardless of the number of services provided.

Medical Provider

An individual or institution that offers healthcare services to patients.

Primary Payer

The insurance policy or program that pays first on a claim for medical care, determining the extent of coverage before any secondary payer contributes.

Employer-provided Insurance

Health insurance coverage provided to employees (and often their families) as part of an employment benefit package.