# CMA Study Group

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## Cost allocated

• #### 1.  Cost allocated

Posted 17 days ago
Hello,

Please, I would like to have a better explanation about the question below.;

 ABD Realty manages five apartment complexes in a three-state area. Summary income statements for each apartment complex are shown as follows.  Included in the expenses is \$1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is (are)A. Apartment complex Four.B. Apartment complexes Two, Three, Four, and Five.C. Apartment complexes Three, Four, and Five.D. Apartment complexes Four and Five

Thank you for your help!

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Rosa Edjang Ayetebe
Accountant
Malabo
Equatorial Guinea
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• #### 2.  RE: Cost allocated

Posted 16 days ago
Dear,

I believe the answer is D. Apartment complexes Four and Five

Rationale:

Remove the impact of allocated overhead (1.2M) from all the apartments and the ones which are still unprofitable at that point should be the ones dropped. below is the calculation.

Do feel free to revert for any further clarity.

 One Two Three Four Five Total Rental Income 1000 1210 2347 1878 1065 7500 expenses 800 1300 2600 2400 1300 8400 Profit 200 -90 -253 -522 -235 -900 % of Allocated Corporate overhead 13% 16% 31% 25% 14% 100% Allocated Corporate overhead 160 194 376 300 170 1200 640.0 1,106.4 2,224.5 2,099.5 1,129.6 Profit 360.0 103.6 122.5 (221.5) (64.6)

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Abdul Naser Parkar
Analyst
Al Nasr, Al Sadd Doha
Qatar
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• #### 3.  RE: Cost allocated

Posted 16 days ago

Hell,

Thank you! I would like to know hoe we got the Allocated overhead for each Complex. For example the 160.

Thanks!

• #### 4.  RE: Cost allocated

Posted 16 days ago
Hi,

First find proportion of each complex's rental income on total Income.. Example Complex one (1000/7500 equals 13%) and so on for each complex.

Now use the total allocated overhead of 1.2M and find the amount already allocated to each complex, which is based on the percentage you calculated in step 1. (so 1.2M*13% is approx 160).

Trust that clarifies.. Attaching the excel sheet which has the calculation for more clarity.

Do not hesitate to get back if you still find it confusing.

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Abdul Naser Parkar
Analyst
Al Nasr, Al Sadd Doha
Qatar
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Attachment(s)

solution.xlsx   11 KB 1 version