Exam 11: Service Department and Joint Cost Allocation

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: - The net advantage (disadvantage) of processing Sweet Meats further is:

The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.

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 cost allocation, the amount of costs allocated from S2 to P2 would be:

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 all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B (rounded to the nearest whole dollar)?

Bartoff Foods produces three supplemental food products simultaneously through a refining process costing $186,000. The joint products, Bulkup and Bodybuilder, have a final selling price of $8 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound for each product incurred after the split-off point. Quicksnack, a by-product, is sold at the split-off point for $6 per pound. The production of Bulkup results in 20,000 pounds with a caloric value of 6,000 calories per pound. The production of Bodybuilder, which is very high in carbohydrates, has a caloric value of 12,500 calories per pound. 10,000 pounds of Bodybuilder are produced. Quicksnack has a caloric value of 2,000 calories a pound and 2,000 pounds are produced. (CMA adapted) Required: (a) Allocate the joint product costs using the net-realizable-value method, assuming that Quicksnack is accounted for as a by-product, with its net realizable value deducted from the cost of the main products. (b) Allocate the joint product costs using the physical quantities method, assuming that Quicksnack is accounted for as a by-product, with its sales revenue accounted for as "other revenue." Bartoff uses calories per pound as the physical measurement. (c) Compute Bartoff Food's gross margin under requirements (a) and (b).

The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile.

Allocated joint costs are useful for:

Which of the following is the least practical reason for allocating service department costs to user departments?

The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes. There are two manufacturing departments, finishing and assembly, and four service departments labeled S1, S2, S3, and S4. Information relevant to Maryville is as follows: Rent paid for the area used is $720,000. - How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?

Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, and Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?

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 step method of allocation, how much Clerical Service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)

Voorhees Manufacturing Corporation produces three products in a joint process. Additional information is as follows: Required: (a) Determine which products should be sold at split-off and which should be processed further. (b) Assuming Voorhees makes decisions that are in its best interest for overall profitability, what would be the company's gross margin?