Exam 11: Service Department and Joint Cost Allocation

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 step method. Allocate Information Systems first and round to the nearest whole dollar. Provide total user department costs.

Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below: Further Price after Number of Price per pound at processing processing Candy type pounds split-off costs further Sweet Meats 50,000 \8 \7 5,000 \1 0.00 Chocolate 100,000 \1 0 \3 0,000 \1 0.50 Delight Minty Wonders 25,000 \5 \2 0,000 \5 .50 - The joint processing costs in this operation:

Steven Parker owns and operates Steven's Septic Service and Legal Advice. Steven's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases: Clerical: Variable cost: expected number of work orders processed Fixed cost: long-run average number of work orders processed Janitorial: Variable cost: labor hours Fixed cost: square footage of space occupied Average and expected activity levels for next month (June) are as follows: No. of Work Orders Averge Labor Hours Square Footage Expected Septic Service 50 80 560 1,800 Legal advice 25 20 840 2,200 Clerical 20 20 400 1,600 Janitorial 5 20 200 1,000 Expected costs in the service departments for June are as follows: Clerical Janitorial Variable costs \ 12,000 \ 4,200 Fixed costs \ 8,400 \ 800 - Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)

Upton 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. Upton has employed the physical quantities 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 Upton's operations for the current month are presented in the chart below. During the month, Upton 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. First Main Second Main Product Product By-Product Monthly output in pounds 90,000 150,000 60,000 Selling Price per pound \ 30 \ 14 \2 Separable process costs \ 540,000 \ 660,000 The amount of joint production cost that Upton would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be:

Why does the sequence in which service departments are allocated make a difference when using the step method but not when using the reciprocal method?

Atkinson, Inc., manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { If Processed Further }$ Units Sales Value at Split- Additional Product Produced Off Sales Value Costs A 6,000 40,000 55,000 \ 4,000 B 4,000 35,000 45,000 6,000 C 2,000 25.000 30.000 8,000 12,000 \ 100,000 \ 130,000 \ 18,000 - Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product A?

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows: Proportion of Services Used by: Department Direct costs S1 S2 P1 P2 S1 \ 60,000 0.70 0.10 0.20 S2 \ 100,000 0.20 0.30 0.50 P1 \ 160,000 P2 \ 140,000 - Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be:

Prestige Financial Credit Company produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow: Allocation base Individual Corporate Data purchased \ 40,000 \ 80,000 Research hours 24,000 30,000 Interview hours 1,000 10,000 Number of reports 16,000 3,000 Required: For each of the four potential allocation bases, determine the amount of support service cost allocated to each type of report. Round all percentages to two decimal places.

Products with a relatively minor sales value are called:

Wimbledon 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: Proportion of Services Used by: Department Direct costs Personnel Cafeteria Machining Assembly Personnel \ 30,000 0.40 0.30 0.30 Cafeteria \ 50,000 0.20 0.50 0.30 Machining \ 80,000 Assernbly \ 70,000 Required: Compute the allocation of service department costs to producing departments for July 2020 using the direct method.

Which of the following best describes intermediate cost centers?

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows: Proportion of Services Used by: Department Direct costs S1 S2 P1 P2 S1 \ 60,000 0.70 0.10 0.20 S2 \ 100,000 0.20 0.30 0.50 P1 \ 160,000 P2 \ 140,000 - Under the step method of allocation, the total amount of service costs allocated to producing departments would be:

Geneva Powder Company produces body powders in batches. Each type of powder can be sold in its current condition or processed further and specialized for high-priced department stores. Joint processing costs are $200,000. Data concerning the various products appear below: Price per Further Price after Number of Pounds Processing Processing Type of Powder Pounds at Split-Off Costs Further Cosmetic Powder 200,000 \1 0 \ 150,000 \1 1.50 Medicated Powder 400,000 \8 \ 60,000 \8 .40 Baby Powder 50,000 \ 5 \ 80,000 \5 .50 Required: (a) Determine which products should be sold at split-off and which should be processed further. (b) The Regis Department Store approaches Geneva Powder. Regis would like Geneva Powder to process Baby Powder into a special powder for its infants department. At what price per pound would Geneva Powder be economically indifferent between selling the powder at the split-off point and processing it further for Regis?

For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the: (CPA adapted)

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

Cariboo Manufacturing Company incurred a joint cost of $600,000 in the production of X and Y in a joint process. Presently, 1,800 of X and 1,400 of Y are being produced each month. Management plans to decrease X's production by 300 units in order to increase the production of Y by 500 units. Additionally, this change will require minor modifications, which will add $20,000 to the joint cost. This cost is entirely attributable to product Y. What is the amount of the joint costs allocable to X and Y before changes to existing production assuming Cariboo allocates their joint costs according to the proportion of X and Y produced? Product X Product Y A. \2 62,500 \ 337,500 B. \ 264,706 \ 335,294 C. \ 273,529 \ 326,471 D. \ 337,500 \ 262,500

The Wang Company conducts a simple chemical process in Department #1, which produces three separate items: A, B, and C. A is processed further in Department #2. B is processed further in Department #3. Product C can be sold immediately. The following information relates to October: Department #1's costs $540,000. Department #2's costs $120,000. Department #3's costs $300,000. A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound. B: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound. C: 50,000 pounds completed; 46,000 pounds sold for $5.00 per pound. There were no beginning inventories. Required: a. Allocate the joint process costs to Products A, B, and C assuming the estimated net realizable value method is used. b. Allocate the joint process costs to products A, B, and C assuming the physical quantities method is used.

The human resource department in a manufacturing company would be considered a service department.

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 Accounting Department's cost allocated to Department B using the direct method?