Exam 12: Cost Allocation

The direct method ignores other service departments when any given service department's costs are allocated to the revenue- producing (operating) departments.

If a company allocated fixed costs on the basis of long- run plans, there is a tendency on the part of managers to underestimate their planned usage.

The use of budgeted service department cost rates protects using departments from:

The predetermined lump- sum approach to allocating fixed costs is based on the short- run usage, regardless of actual usage from month to month.

Nixon 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 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 traditional costing and applying overhead costs based on direct labor hours is used.

Eventually, all direct service department costs will become indirect production department costs.

What are by- products and how do we account for them?

Point in a joint process where individual products are separately identifiable

Variable and fixed- service department costs should be allocated separately.

Cost application refers to costs allocated to:

Type 3 allocations are cost that flow from:

Pedro 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 16 24 48 64 employees If the step- down method is used to allocate costs and the Maintenance Department is allocated first, then the amount of overhead that would be allocated from Personnel to Maintenance is:

Costs are allocated for all the following purposes except to:

LeBlanc Company manufactures two sizes of its frying pan, a Tiny and a Huge model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information: Number of Material Number of Product Number of Orders Product Inspections Shipped Tiny 184 100 668 Huge 248 100 516 Costs per pool \ 54,000 \ 32,800 \ 103,000 Required: Assuming activity- based costing is used, allocate each cost pool to each model.

Companies must assign all costs for internal management purposes.

A cost accounting system first assigns costs to organizational units and then accumulates these costs within the unit.

Sparrow Company processes copper ore into two products, C and U. The ore costs $5 per pound and conversion costs are $15 per pound. Sparrow Company plans to produce 40,000 pounds of C and 20,000 pounds of U from 60,000 pounds of ore. C sells for $30 per pound and U sells for $40 per pound. Assuming the relative- sales- value method of allocating joint costs, the amount of joint cost allocated to product U would be:

What are the preferred guidelines for allocating service department costs?

By- products normally have significant total sales values in comparison with other products emerging at the split- off point.

Two conventional ways of allocating joint costs to products are physical units and relative sales values.