Exam 17: Allocation of Support Activity Costs and Joint Costs

Tennison Corporation has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing). Maintenance is the larger service department and Assembly is the largest production department. The two service departments service each other as well as the three producing departments. On the basis of this information, which of the following cost allocations would not occur under the direct method?

When allocating service department costs, companies should use actual costs rather than budgeted costs, and separate rates for variable and fixed costs.

Use the following information to answer the following Questions Kingston Specialty Corporation manufactures joint products P and Q. During a recent period, joint costs amounted to $80,000 in the production of 20,000 gallons of P and 60,000 gallons of Q. Kingston can sell P and Q at split-off for $2.20 per gallon and $2.60 per gallon, respectively. Alternatively, both products can be processed beyond the split-off point, as follows -The joint cost allocated to P under the relative-sales-value method would be:

Use the following information to answer the following Questions Marshall Welding Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. -Marshall Welding uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Machining?

Palen Chemical Company manufactures X-111, X-112, and X-113 from a joint process. The following information is available for the period just ended: Required: A. Does Palen allocate joint costs by using the physical-units method? Explain. B. Assume that Palen does not use the physical-units method but instead allocates joint costs by using the relative-sales-value method. Find the four unknowns in the preceding table.

Which of the following methods recognizes the fact that fixed and variable service department costs should be allocated separately?

Lowrey Chemical manufactures two industrial chemicals in a joint process. In October, $200,000 of direct materials were processed at a cost of $300,000, resulting in 16,000 pounds of Pentex and 4,000 pounds of Glaxco. Pentex sells for $35 per pound and Glaxco sells for $60 per pound. Management generally processes each of these chemicals further in separable processes to manufacture more refined products. Pentex is processed separately at a cost of $7.50 per pound, with the resulting product, Pentex-R, selling for $45 per pound. Glaxco is processed separately at a cost of $10 per pound, and the resulting product, Glaxco-R, sells for $100 per pound. Required: A. Compute the company's total joint production costs. B. Assuming that total joint production costs amounted to $500,000, allocate these costs by using: (1) The physical-units method; (2) The relative-sales-value method; (3) The net-realizable-value method.

Quatro Corporation manufactures two chemicals (Flextra and Hydro) in a joint process. Data from a recent month follow. Direct materials used: $360,000 Direct labor: $150,000 Manufacturing overhead: $690,000 Manufacturing output: Flextra: 40,000 gallons Hydro: 120,000 gallons Flextra sells for $15 per gallon and Hydro sells for $20 per gallon. Required: A. Compute the total joint costs to be allocated to Flextra and Hydro. B. Compute the joint costs that would be allocated to Flextra by using the physical-units method. C. Compute the joint costs that would be allocated to Hydro by using the relative-sales-value method. D. Assume that Hydro can be converted into a more refined product, Hydro-R, in a totally separable process at an additional cost of $4 per gallon. If the refined product can be sold in the marketplace for $26 per gallon, compute the net realizable value of Hydro-R.

Consider the following statements about joint product cost allocation: I. Joint product cost is allocated because it is necessary for inventory valuation. II. Joint product cost is allocated because it is necessary for making economic decisions about individual products (e.g., sell at split-off or process further). III. Joint cost may be allocated to products by using several different methods. Which of the above statements is (are) correct?

Grassley Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. If Grassley uses dual-cost accounting procedures and variable administrative costs total $200,000, the amount of variable administrative cost to allocate to Department 1 would be:

Ramos Corporation uses the physical-units method to allocate costs among its three joint products: X, Y, and Z. The following data are available for the period just ended: Joint processing cost: $800,000 Total production: 150,000 pounds Share of joint cost allocated to X: $160,000 Share of joint cost allocated to Y: $400,000 Which of the following statements is true?

The reciprocal-services method is less accurate than the direct and step-down methods.

The Gross Margin at Split-Off method should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product.

Downtown Hospital has two service departments (Patient Records and Accounting) and two "production" departments (Internal Medicine and Surgery). Which of the following allocations would likely take place under the reciprocal-services method of cost allocation?

Use the following information to answer the following Questions Stoney Brook Company produces two products (X and Y) from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint manufacturing costs for the year were $60,000. Sales values and costs were as follows: -If the joint production costs are allocated based on the net-realizable-value method, the amount of joint cost assigned to product Y would be:

Under dual-cost allocation, fixed costs are allocated on the basis of a user department's:

Clarion Company, a new firm, manufactures two products, J and K, in a common process. The joint costs amount to $80,000 per batch of finished goods. Each batch results in 20,000 liters of output, of which 80% are J and 20% are K. The two products are processed beyond the split-off point, with Clarion incurring the following separable costs: J, $2 per liter; K, $5 per liter. After the additional processing, the selling price of J is $12 per liter, and the selling price of K is $15 per liter. Required: A. Determine the proper allocation of joint costs if the company uses the net-realizable-value method. B. Assume that Clarion sold all of its production of K during the current accounting period. Compute K's sales revenue, cost of goods sold, and gross margin. C. Is the firm's cost-of-goods-sold figure influenced by the choice of a joint-cost allocation method? Briefly explain.

State Hospital has two service departments (Patient Records and Accounting) and two "production" departments (Internal Medicine and Surgery). Which of the following allocations would not take place under the reciprocal-services method of cost allocation?

Use this information to answer the following Questions Corey Corporation manufactures joint products W and X. During a recent period, joint costs amounted to $300,000 in the production of 20,000 gallons of W and 60,000 gallons of X. Both products will be processed beyond the split-off point, giving rise to the following data: -The joint cost allocated to X under the net-realizable-value method would be:

Which of the following would not be considered a service department in a hospital?