Exam 7: Allocating Costs of Support Departments and Joint Products

Tec-Pro Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet. Data on direct department costs, number of employees, and space occupied are as follows: S1 S2 P1 P2 Direct dept. costs \ 7,500 \ 11,000 \ 27,500 \ 30,000 Number of employees 10 5 20 25 Space occupied (sq. ft.) 1,000 500 1,500 2,500 When Tec-Pro uses the sequential method, the support department allocated first is the one with the highest percentage of interdepartmental service. The choice of the department allocated first is determined by the comparison of the following ratio for S1 and S2, respectively:

Joint costs are

Departmental __________ is applied to products passing through the department.

Which of the following methods of joint cost allocation serves the purpose of product costing?

Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000. Normal and actual activity (brochures made) are as follows: Brochure Center 1 Brochure Center 2 Normal activity (brochures) 1,200,000 800,000 Actual activity (brochures) 1,000,000 880,000 For purposes of performance evaluation, fixed costs allocated to Brochure Center 2 are:

Which of the following is NOT a major objective of allocation as identified by the IMA?

Which of the following methods allocates joint production costs based on the pounds of product produced?

A single charging rate uses the fixed costs of the support department.

Budgeted rates are allocated based on original capacity.

Garden of Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run costs $50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be processed past the split-off point, incurring separable costs for Brights of $60 per unit and $40 per unit for Dulls. The market price is $250 for Brights and $200 for Dulls. What is the gross profit for Brights assuming the physical units method is used?

The following information pertains to Famous Company: Support Departments Producing Departments Personnel Maintenance Fabrication Assembly Budgeted overhead \ 40,000 \ 72,000 \ 140,000 \ 160,000 Direct 1abor hours 2,000 2,500 8,000 10,000 Machine hours - - 12,000 8,000 Number of employees 4 5 15 25 Famous Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours. Predetermined overhead rates for fabrication and assembly are based on direct labor hours. What is the amount of maintenance costs allocated to the Assembly Department using the direct method? (Round amounts to dollars.)

Astoria Savings & Loans of New York has three revenue-generating departments: Consumer accounts, Commercial accounts, and Loans. The bank also has three service areas: administration, personnel, and accounting. The direct costs per month and the interdepartmental service structure are shown below: Percentage of Service Used by Dept. Costs Admin. Pers. Acctg. Consumer Comm'l Loans Administration \ 40,000 - 10 10 40 20 20 Personnel 23,000 10 - 10 20 40 20 Accounting 30,000 10 10 - 20 20 40 Consumer 41,000 Commercial 25,000 Loans 16,000 How much cost would be allocated to the Commercial account area from administration using the direct method?

Hotchkiss Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $90,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $9,000 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $36,000 and $60,000, respectively. Data on standard service hours and number of employees are as follows: Maint. Person. Dept. Dept. Dept. Dept. P1 P2 Standard service hours used 400 200 1,200 600 Number of employees 20 40 180 180 Direct labor hours 200 200 1,000 1,000 What are the total overhead costs associated with P2 after allocating the Maintenance and Personnel Departments using the direct method?

Describe the differences between the direct, sequential and reciprocal methods of allocating support department costs to production departments.

Allocation increases total costs.

Diane's Pottery Manufacturing Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $30,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: Maint. Person. Dept. Dept. Dest. Dept. Standard service hours used 100 75 600 300 Number of employees 50 100 150 150 Direct labor hours 125 125 500 250 What are the total overhead costs associated with Department X after allocating the Maintenance and Personnel Departments using the direct method?

Which of the following cost categories would most likely use the number of employees or new hires as its activity driver?

The direct method is the most difficult way to allocate costs to the support departments.

Howard Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet. Data on direct department costs, number of employees, and space occupied are as follows: S1 S2 P1 P2 Direct dept. costs \ 7,500 \ 11,000 \ 27,500 \ 30,000 Number of employees 10 5 20 25 Space occupied (sq. ft.) 1,000 500 1,500 2,500 If Howard used the reciprocal method, the algebraic equation expressing the total costs allocated from S1 is

The __________ method of allocating costs assumes "step down" interdepartmental services.