Exam 11: Service Department and Joint Cost Allocation

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively. Maintenmes Accounting A B Machine hours 480 20 2,300 200 Number of employees 2 2 8 4 - What is the cost of the Accounting Department's cost allocated to Department A (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first?

Cambridge Company manufactures three main products, L, M, and N, from a joint process. Additional information for June production activity follows: Assuming that the 10,000 units of N were processed further and sold for $78,000, what was Cambridge's gross profit from this sale? Assume the physical quantities method of allocation is used.

Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?

Morgan and Regis Consultants is a large, international consulting organization. The company provides consulting services in the computer and Internet areas. The company also has several divisions that provide manufacturing of various computer parts. The company has five divisions that are all profit centers. Each division includes allocated corporate costs in its annual budget. The budget for the coming year for the Building and Grounds Service Department is $6,000,000. Included in this budget is the maintenance of all corporate buildings, depreciation, cleaning, insurance, and all other facility-related maintenance costs. The company uses a weighted method of allocating facility costs based on the type of space maintained by each division. Space ranges from manufacturing warehouses, which are least expensive to maintain, to computer mainframe space, which requires specialized temperature controls, air conditioning, and maintenance. The company has decided to use a weighting system assigning the following relative weights to each type of space: 1 for warehouse, 3 for office, and 5 for computer space. Below, find data relating to the five divisions and the square footage of each type of space. Currently, Division 5, the Internet Consulting Division, is the largest in sales volume and profits for the company, which has been growing at the rate of 20% per year, while Divisions 3 and 4 have been struggling due to declining margins on technology products. Required: (a) As director of corporate budgeting, you are required to send to each division its facility allocation for the coming year. Prepare a schedule showing how the budget of $6,000,000 will be allocated to each division. (Round allocation rate to six decimal places) (b) Describe potential motivational problems brought on by these allocations.

Which of the following statements is false?

With the reciprocal method, the total service department costs less the direct costs of the service department equal the cost allocated to the service department.

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred: Computer services (85% fixed) $ 260,000 Building occupancy 600,000 Personnel costs 110,000 Total common costs $ 970,000 The following information is available concerning various activity measures and service usages by each of the divisions: Area occupied (square feet) 20,000 40,000 Payroll \ 380,000 \ 180,000 Computer time (hours) 200 220 Computer storage (megabytes) 4,050 -0- Equipment value \ 200,000 \ 250,000 Operating profit (pre-allocations) \ 555,000 \ 495,000 - If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B (rounded to the nearest whole dollar)?

Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service department costs to the user departments using the direct method. (Round to the nearest whole dollar and provide total user department costs.)

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to:

Boswell Consulting has two service departments, S1 and S2, and three production departments, P1, P2, and P3. Data for a recent month follow: Required: (a) Determine the allocations to the production departments when the reciprocal method is used. (b) Briefly describe why the reciprocal method is theoretically preferable to other methods of allocation.

Smokey Enterprises buys Liquid Charcoal for $0.80 a gallon. At the end of processing in Department 1, the liquid charcoal splits off into Products U, V, and W. Product U is sold at the split-off point, with no further processing. Products V and W require further processing before they can be sold; Product V is processed in Department 2, and Product W is processed in Department 3. Following is a summary of costs and other related data for the most recent accounting period: There were no beginning inventories and there was no liquid charcoal on hand at the end of the period. All gallons on hand in ending inventory were complete as to processing. Required: a. Determine the product cost for U, V, and W, assuming the physical quantities method is used to allocate joint costs. b. Determine the product cost for U, V, and W, assuming the net realizable value method is used to allocate joint costs.

The Marketplace Corporation produces two consumer products and a by-product. Zylon is ready for sale after split-off, while Qytol must be further processed. The by-product is a heavy residue in the bottom of the vat. The net realizable value of the by-product is credited against the $565,000 joint cost of the Heating Department. Volume and cost data for February is as follows: Gallons Selling Additional Produced Price Processing Zylon 200,000 \ 2.00 0 Qytol 400,000 1.10 \ 40,000 By-Product 5,000 0.50 0 Required: a. Allocate the Heating Department cost to the products using the physical quantities method. b. Allocate the Heating Department cost to the products using the estimated net realizable value (workback) method.

The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were: Additional Processing Product Weight Sales Costs P 300,000 \ 245,000 \ 200,000 Q 100,000 30,000 -0- R 100,000 175,000 100,000 - If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product P?

The following information relates to Osceola Corporation for the past accounting period. Direct costs Service Department A \ 80,000 Service Department B 60,000 Producing Department C 15,006 Producing Department D 20,000 Propartion of sernceby A to: 10\% 60\% 30\% Proportion of service by B to: A 30\% C 20\% D 50\% - Using the reciprocal (simultaneous solution) method, Department A's cost allocated to Department C (rounded to the nearest whole dollar) is:

The Macon Industries started the production of K1 (its main product) and S2 (its by-product) on January 2, 2020. During 2020, 7,500 units of K1 and 1,500 units of S2 were produced. In 2020, 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 2020 and the inventory was sold in 2021 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 $0.45 per unit. Operating expenses were $60,000 in 2020 and $12,000 in 2021. Required: a. Prepare an income statement for 2020 and 2021 assuming the "other revenue" method of accounting for by-products is used. b. Prepare an income statement for 2020 and 2021, assuming the "cost reduction" method of accounting for by-products is used and by-product costs are expensed in the period in which they are incurred.

Boston Corporation has two production departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows: Required: Compute the allocation of service department costs to producing departments for July 2020 using the step method.

The Joplin Company conducts a simple chemical process in Department #1, which produces three separate items: A, K, and H. A is processed further in Department #2. K is processed further in Department #3. Product H is a by-product, to be accounted for by the cost reduction method. The following information relates to September: Department #1's costs $420,000. Department #2's costs $150,000. Department #3's costs $60,000. A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound. K: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound. H: 10,000 pounds completed; 10,000 pounds sold for $1.50 per pound. (There are shipping costs of $0.30 per pound.) There were no beginning inventories. Required: Prepare a schedule to show the computation for the unit costs per pound for Products A, K, and H assuming Joplin uses the estimated net realizable value method to allocate joint costs to the main products.

Describe the difference between the direct method of service department allocation, the step method, and the reciprocal method.

Joint products are outputs from common inputs and a common production process.

Veneer Company has two service departments and two producing departments. The number of employees in each department is: Personnel 10 Cafeteria 25 Producing Department A 265 Producing Department B The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated (rounded to two decimal places) to Department B under the direct method would be: