Exam 12: Cost Allocation

Goldie Company manufactures two models of pens-a standard and a deluxe model. Three activities have been identified as cost drivers and the related overhead costs ($60,000) pooled together to arrive at the following information: Product Number of Setups Number of Components Number of DLH Standard 22 8 375 Deluxe 28 12 225 Costs per pool \ 15,000 \ 36,000 \ 9,000 If activity- based costing is used, the cost assigned to the standard model using the number of setups would be:

recognizes that some service departments support the activities in the service departments as well as those in production departments.

Power costs are normally allocated using megawatt hours as the cost driver.

The techniques used to determine the cost of a product or service by collecting and classifying costs and assigning them to cost objectives

Redrum Company has four divisions and allocates Central costs to each division based on one of three cost drivers as follows: North South East West Revenue \ 16,250 \ 20,750 \ 14,500 \ 17,750 Cost of goods sold 10,250 14,750 10,500 13,750 Total assets 20,000 24,000 19,250 22,250 Total central costs were $17,500. Required: Allocate the Central costs to the four divisions based on the following cost drivers: a. revenue b. cost of goods sold c. total assets

A method for allocating service department costs that recognizes that some service departments support the activities in other service departments as well as those in production departments

McGovern Company has two departments, Get and Go. Relevant information is presented below: Get Go Budgeted Sales \ 400,000 \ 2,000,000 Actual Sales \ 300,000 \ 2,100,000 If the total advertising expense is $300,000 and it is allocated on the basis of sales using the preferred method, then the amount allocated to the Get Department should be:

This joint cost allocation method can be used when one or more joint products cannot be sold at the split- off point

Briefly explain each of the two conventional ways of allocating joint costs of products.

Cross Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: Maintenance Personnel Mixing Finishing Direct dept.costs \ 126,000 \ 105,000 \ 175,000 \8 4,000 Square footage 800 400 1,600 1,200 Number of employees 8 12 24 32 If the step- down method is used to allocate costs and the Maintenance Department is allocated first, then the cost of the Mixing Department after allocation would be:

The preferred guidelines for allocating service department costs include:

Square feet is the best cost driver for depreciation of heating and air conditioning equipment.

Poodle Company manufactures three products from a joint process. Joint costs for the year amounted to $250,000. The following data are also available: Sales Value at Product Units Produced Split-off X 5,000 \ 70,000 Y 3,000 \ 30,000 Z 2,000 \ 100,000 Assuming the physical- units method of allocating joint costs, the amount of joint costs allocated to product Y would be:

The purpose that tends to dominate cost allocation

Juan Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: Maintenance Personnel Mixing Finishing Direct dept.costs \ 50,400 \ 33,600 \ 42,000 \ 70,000 Square footage 1,600 800 3,200 2,400 Number of employees 16 24 48 64 If the step- down method is used to allocate costs and the Maintenance Department is allocated first, the amount of overhead that would be allocated from Maintenance to Personnel is:

The use of cost drivers such as division revenue or total assets represent an "ability to bear" philosophy.

Kennedy Company has two departments, Hot and Cold. Relevant information is presented below: Hot Cold Square footage 1,500 4,500 Number of employees 280 120 If total payroll processing costs are $24,000 and they are allocated on the basis of number of employees, the amount allocated to the Hot Department should be:

Australia Company has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $4.00. Other relevant data are as follows: Mixing Finishing Long-run capacity av ail able* 18,000 12,000 Budgeted 12,000 10,500 15,000 9,000 *in labor hours Actual maintenance department costs were $36,000 fixed and $100,000 variable. The amount of variable maintenance costs allocated to the Finishing Department should be:

Clinton Company manufactures two models of pens-a standard and a deluxe model. Three activities have been identified as cost drivers and the related overhead costs ($60,000) pooled together to arrive at the following information: Product Number of Setups Number of Components Number of DLH Standard 22 8 375 Deluxe 28 12 225 Costs per pool \ 15,000 \ 36,000 \ 9,000 is the total amount of overhead costs assigned to the standard model assuming activity- based costing is used.

Joint cost allocations should be ignored for decisions such as selling a joint product or processing it further.