Galleon Shipping Lines has entered into a 50-50 joint venture with 2ROW Group, Inc. to operate a cargo vessel between the port of Davao, Philippines and the Port of Eden, Australia.
As part of the financial department, your team –Cost Control- has requested to prepare a schematic drawing of the allocation of the crew (direct labor), fuel (manufacturing overhead) and marketing costs (period costs) including the corresponding cost drivers.
a) What is the most effective cost object to base the cost calculations?
b) Illustrate how the costs are expected to behave on a monthly basis?
c). which costs are expected to be fixed and variable respectively?
d). Assign a relevant rate to each driver highlighted?
e). Identify which costs would require an allocation base and illustrate the corresponding allocation logic.
f). which costs are expected to be controllable and uncontrollable respectively?
Costs are allocated on an equal basis as reflective of the joint venture basis
There is no foreign exchange difference in the cost calculation between the Philippines and Australian joint venture
It is advisable that you include hypothetical numbers to illustrate possible related calculations