Question

Bubba and Danny are college friends planning a skiing trip to Killington before the New Year. They estimated the following for the trip:

Estimated Activity Allocation

Costs Allocation Base Bubba Danny

Food \( 400 Pounds of food eaten 24 26

Skiing 300 Number of lift tickets 2 0

Lodging 280 Number of nights 2 2

\) 980

Requirements

1. Bubba suggests that the costs be shared equally. Calculate the amount each person would pay.

Short answer

Each person should pay $490.

Step-by-step solution

Overhead allocation

Overhead allocation is the apportionment of cost to each activity or process or person based on a certain ratio. This ratio can be allocation base or can be in any predetermined ratio.

In costing, overhead allocation is important to get the appropriate amount of full cost and to determine the price.

Allocation of overhead in the given case

As given, Bubba suggests sharing the coat equally. So the total amount would be shared in the ratio of 1:2 to each person.

$$\begin{gathered} \mathbf{cost}\mathbf{}\mathbf{for}\mathbf{}\mathbf{each}\mathbf{}\mathbf{person}\mathbf{}\mathbf{=}\mathbf{}\frac{\mathbf{total}\mathbf{}\mathbf{cost}}{\mathbf{2}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{980}}{\mathbf{2}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{490} \end{gathered}$$