Exam 8: Cost Allocation: Practices

Internal resources,such as the legal department,training department,information technology,tend to be under-utilized,leading to a death spiral,when:

Williams manufactures a variety of iron products,made to customer specifications,in small batches.Willie Williams,owner,is concerned that he does not have an accurate understanding of the costs of production.You,a newly-minted MBA,have researched his business and identified various costs and cost drivers. Own costs Square feet \# employees \#transactions (thou) Power usage Janitorial \ 12,000 500 7 30 22 Welding \ 90,000 3,000 25 100 730 HR \ 37,200 1,500 8 180 11 Data Sves \ 32,400 2,000 10 600 17 Assembly \ 54,000 4,500 75 140 220 Total \ 225,601 11,500 125 1,050 1,000 The service departments (Janitorial,HR,and Data Services)are allocated to the two production departments (Welding and Assembly).Janitorial costs are allocated using square feet,HR using number of employees,and Data Services using number of transactions.You recall that there are several approaches to the allocation of service department costs,direct,step-down and reciprocal methods. If the step-down method is applied,allocating the most costly department first,which is true?

Of the following statements,which is true?

When considering the purchase of a large central system,such as power generation or computer networks,firms have to decide how big a system to acquire and whether,and,if so,how to charge users for it subsequently.Which is true? Charge Lirely consequence a. None Firm acquires more capacity than needed b. Full cost Demand for resource equals capacity c. Depreciation only Firm acquires less capacity than needed d. Depreciation only Demand for resource equals capacity e. None of the above

Which is not true of the various methods of allocating service department costs?

Eldorado Emerald (EE)mines and processes emeralds in its mines throughout the world.Large rocks are mined,these large rocks are gently crushed and any emeralds are sifted out.The emeralds are then sorted,graded,cut,and polished.The joint cost per ton of rock is $18,000.The following table summarizes the number of emeralds per ton of mined rock,the additional costs to package and sell each emerald after it's polished and graded,and the selling price for each grade of emerald. Number of stones per ton Sales price/emerald Additional costs to package and sell each emerald AAA 35 \ 400 \ 125 50 \ 150 \ 60 90 \ 60 \ 10 Which of the following is true?

The Parvis Paramount Pigsty (PPP)raises pigs,from which a variety of pork products are processed.The herd features the Danish Yorkshire,which typically reaches 105 kgs at maturity.The following table summarizes the production process of producing Porktry,Porfekt,and Porkatoo from one pig Porktry Porfekt Porkatoo Weight, in kgs 45 20 35 Sales price, kg 22.50 84.00 28.00 Processing costs per kg 13.50 50.40 14.00 Previous research has indicated that raising a Danish Yorkshire from breeding to disposition costs an average of €3 per kg.The ratio of pig parts to products is relatively inflexible;as yet,bio-engineering has failed to produce pigs with other than four legs.Of the statements below,which is true of the allocation of the joint costs?

Williams manufactures a variety of iron products,made to customer specifications,in small batches.Willie Williams,owner,is concerned that he does not have an accurate understanding of the costs of production.You,a newly-minted MBA,have researched his business and identified various costs and cost drivers. Own costs Square feet \# employees \#transactions (thou) Power usage Janitorial \ 12,000 500 7 30 22 Welding \ 90,000 3,000 25 100 730 HR \ 37,200 1,500 8 180 11 Data Sves \ 32,400 2,000 10 600 17 Assembly \ 54,000 4,500 75 140 220 Total \ 225,601 11,500 125 1,050 1,000 The service departments (Janitorial,HR,and Data Services)are allocated to the two production departments (Welding and Assembly).Janitorial costs are allocated using square feet,HR using number of employees,and Data Services using number of transactions.You recall that there are several approaches to the allocation of service department costs,direct,step-down and reciprocal methods. If the step-down method is used in this case,which sequence of allocations is not valid?

The reciprocal allocation method is the most precise yet infrequently used.Which of the following is not true?

Williams manufactures a variety of iron products,made to customer specifications,in small batches.Willie Williams,owner,is concerned that he does not have an accurate understanding of the costs of production.You,a newly-minted MBA,have researched his business and identified various costs and cost drivers. Jaritarial Weding HR Sves Assenbly Tatal Oun east \ 12,000 \ 90,000 \ 37,200 \ 32,400 \ 54,000 \ 25,600 Squre feet 500 3,000 1,500 2,000 4,500 11,500 \# employees 7 25 8 10 75 125 \#trantactians (thou) 30 100 180 600 140 1,050 Pqwer uese 22 730 11 17 220 1,000 The service departments (Janitorial,HR,and Data Services)are allocated to the two production departments (Welding and Assembly).Janitorial costs are allocated using square feet,HR using number of employees,and Data Services using number of transactions.You recall that there are several approaches to the allocation of service department costs,direct,step-down and reciprocal methods. If the step-down method is applied,allocating the most costly department first,which is true?

Williams manufactures a variety of iron products,made to customer specifications,in small batches.Willie Williams,owner,is concerned that he does not have an accurate understanding of the costs of production.You,a newly-minted MBA,have researched his business and identified various costs and cost drivers. Own costs Square feet \# employees \#transactions (thou) Power usage Janitorial \ 12,000 500 7 30 22 Welding \ 90,000 3,000 25 100 730 HR \ 37,200 1,500 8 180 11 Data Sves \ 32,400 2,000 10 600 17 Assembly \ 54,000 4,500 75 140 220 Total \ 225,601 11,500 125 1,050 1,000 The service departments (Janitorial,HR,and Data Services)are allocated to the two production departments (Welding and Assembly).Janitorial costs are allocated using square feet,HR using number of employees,and Data Services using number of transactions.You recall that there are several approaches to the allocation of service department costs,direct,step-down and reciprocal methods. If the direct method is used,which of the following is true?

Joint costs in different industries may be allocated using any of the following methods,except: