Exam 11: Service Department and Joint Cost Allocation

In deciding whether to outsource a service department or not,the cost of the service department should be estimated using the step method of allocation.

Lankip Company produces two main products and a by-product out of a joint process.The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month.Lankip has employed the physical-volume method to allocate joint production costs to the two main products.The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products.Data regarding Lankip's operations for the current month are presented in the chart below.During the month,Lankip incurred joint production costs of $2,520,000.The main products are not marketable at the split-off point and,thus,have to be processed further. The amount of joint production cost that Lankip would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be

Which of the following departments is not a service department in a typical manufacturing company?

If a company's two joint products can be sold at the split-off point,there is no reason for allocating the joint costs to the products.

In joint product costing and analysis,which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted)

Joint costs are processing costs incurred after the split-off point in a common production process.

The equation for department S3 (supervision)is

The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.

Allocated joint costs are useful for

Lite Co.manufactures products X and Y from a joint process that also yields a by-product,Z.Revenue from sales of Z is treated as a reduction of joint costs.Additional information is as follows: Joint costs were allocated using the net realizable value method at split-off approach.The joint costs allocated to product X were

In a sell-or-process-further decision,the common costs incurred prior to the spilt-off point are irrelevant.

Products with a relatively minor sales value are called

The McClean Manufacturing Company started the production of K1 (its main product)and S2 (its byproduct)on January 2,2010.During 2010,7,500 units of K1 and 1,500 units of S2 were produced.In 2010,6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit,respectively.Production was halted at the end of 2010 and the inventory was sold in 2011 at the normal selling prices.The joint production costs were $240,000 and are entirely avoidable.The separable costs to produce K1 were $2.60 per unit and to produce S2 were $.45 per unit.Operating expenses were $60,000 in 2010 and $12,000 in 2011. Required: a.Prepare an income statement for 2010 and 2011 assuming the "other revenue" method of accounting for byproducts is used. b.Prepare an income statement for 2010 and 2011,assuming the "cost reduction" method of accounting for byproducts is used.

The equation for department P2 (final assembly)is

Which of the following is a weakness of the step method of service cost allocations?

Assuming that joint production costs are allocated using the physical quantities method (units produced),what were the costs allocated to Product X?

If two service departments service the same number of departments,which service department's costs should be allocated first when using the step method?

What is the net income of Moody Company if the estimated net realizable value method of joint cost allocation is used?

Since by-products have minor sales value,alternative methods of accounting for them will not have a material effect on the financial statements.

There are several methods for allocating service department costs to production departments.The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted)