Exam 7: Allocating Costs of Support Departments and Joint Products

The Ruling Company assigns plant administration costs to the production departments based on the number of employees. Which of the following would NOT be a good combination of common costs with an activity driver?

What is the most likely action to be taken by a company when a support department is NOT as cost effective as an outside source?

Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: MD PD P1 P2 Standard service hours used 100 50 300 150 Number of employees 10 20 90 90 Direct labor hours 50 50 250 250 Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

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 amount of joint costs allocated to Dulls using the physical units method?

Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: MD PD P1 P2 Standard service hours used 100 50 300 150 Number of employees 10 20 90 90 Direct labor hours 50 50 250 250 What is the combined total department costs for the producing departments after allocation of the support departments?

Compare and contrast the various methods of accounting for joint product costs.

Some support departments typically found in manufacturing and nonmanufacturing organizations are as follows: Cafeteria Personnel Maintenance Purchasing Accounting Required: For each of the preceding support departments, indicate potential bases that could be used to allocate costs to the producing departments.

What is one of the potential disadvantages of NOT allocating support department costs to production departments?

Long Distance Company's travel department had the following budgeted costs for the coming year: Variable costs $\quad \$ 34$ per trip Fixed costs $\quad \$ 143,360$ Yearly Trips Monthly Peak Trips West Sales Territory 110 trips 5 Midwest Sales Territory 170 trips 12 Southern Sales Territory 150 trips 15 Eastern Sales Territory 130 trips 8 The actual usage is given below: West Sales Territory 100 trips Midwest Sales Territory 150 trips Southern Sales Territory 160 trips Eastern Sales Territory 140 trips Using both a fixed and variable rate with fixed costs allocated on the basis of monthly peak trips, what will the West Sales Territory be charged for the year? (round to the nearest dollar)

Dual rates combine the fixed and variable costs.

Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy center on the basis of total copies made. During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000. Normal and actual activity (copies made) are as follows: Copy Center 1 Copy Center 2 Normal activity (copies) 600,000 400,000 Actual activity (copies) 500,000 440,000 For purposes of performance evaluation, fixed costs allocated to Copy Center 1 are:

The split-off point can best be defined as

Alliance Manufacturing Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $90,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $13,500 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $27,000 and $45,000, respectively. Data on standard service hours and number of employees are as follows: Maint. Person. Dept. Dept. Dest. Dept. Standard service hours used 200 150 1,200 600 Number of employees 25 50 75 75 Direct labor hours 250 250 1,000 500 Predetermined overhead rates for Departments X and Y, respectively, are based on direct labor hours. What is the overhead rate for Department Y assuming the direct method is used?

Which joint cost allocation method is described by the following statement? Joint cost is prorated to the products on the basis of each product's share of units.

Which of the following would be the most appropriate base for allocating the costs of the housekeeping department?

Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2018 for its three departments: Sportswear Lingerie Appliance: Sales \ 160,000 \ 120,000 \ 120,000 Direct adverti sing costs \ 7,000 \ 12,000 \ 3,000 Newspaper ad space 62\% 20\% 18\% How much of the indirect advertising costs will be allocated to the Sportswear Department if newspaper ad space is the activity driver?

If the allocation is for performance evaluation, the allocation of variable support department costs would be calculated as

Foster Company incurred $200,000 to manufacture the following products in a joint process: Selling Price Product UnitsProduced Weightper Unit per Unit 500 8. \ 5 1,000 6. 10 1,500 4. 10 2,000 2. 5 How much joint cost would be allocated to Product K based on the total sales value method?

Long Distance Company's travel department had the following budgeted costs for the coming year: Variable costs $\quad \$ 34$ per trip Fixed costs $\quad \$ 143,360$ Yearly Trips Monthly Peak Trips West Sales Territory 110 trips 5 Midwest Sales Territory 170 trips 12 Southern Sales Territory 150 trips 15 Eastern Sales Territory 130 trips 8 The actual usage is given below: West Sales Territory 100 trips Midwest Sales Territory 150 trips Southern Sales Territory 160 trips Eastern Sales Territory 140 trips Using both a fixed and variable rate, what are the respective rates for fixed and variable per trip for the West Sales Territory? Fixed costs are allocated on the basis of monthly peak trips.

A possible causal factor to use when allocating cafeteria costs would be