Exam 15: Allocation of Support-Department Costs, Common Costs, and Revenues

The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance-hour. The facility averages 40,000 maintenance-hours a year. Budgeted and actual hours per user for 2017 are as follows: Assume that budgeted maintenance-hours are used to calculate the allocation rates. Required: a.If a single-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department? b.If a single-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage? c.If a dual-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department? d.If a dual-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage? Based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

One version of the reciprocal method of cost allocation uses a sequence that begins with allocating the costs of the support department that renders the lowest amount of services to support departments and ends with the allocation of costs of the department that renders the highest dollar amount of services to other support departments.

Which of the following is a disadvantage of single-rate method?

Which of the following is one of the methods of allocating support department costs to operating departments that partially recognizes mutual service provided among all support departments?

The method that allocates each department's budgeted costs to operating departments only is called ________.

When actual cost-allocation rates are used, managers of the supplier division are motivated to improve efficiency.

The stand-alone method of allocating determines the weights for cost allocation by considering each user of the cost as a separate entity.

Marshall University offers only high-tech graduate-level programs. Marshall has two principal operating departments, Commerce and Social Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is number of credit hours for a department. The Facility and Technology Maintenance budget is $500,000, while the Enrollment Services budget is $900,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department: Required: Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept. Compute the total amount of support costs allocated to each of the two principal operating departments, Commerce and Social Sciences.

Which of the following methods ranks individual products in a bundle for revenue allocation?

Foodiez Inn is a fast-food restaurant that sells burgers and hot dogs in a 1980s environment. The fixed operating costs of the company are $10,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company: Required: a.What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February? b.Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations.

The single cost-allocation method makes no distinction between fixed and variable costs.

Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $310,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $100,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $102,500 and $123,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows: Production Support DepartmentsDepartments Using the step-down method, what amount of Warehouse Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Do not round any intermediary calculations.)

Which of the following is an advantage of a dual-rate method?

Describe methods which may be used to allocate support costs within organizations containing multiple support departments. Discuss advantages and disadvantages of the various methods.

There is uncertainty in defense contracts about the final cost to produce a new weapon or equipment. Explain.

If the government wants to contract a very large scale project with significant uncertainty about what the final cost will be; often a cost-plus contract is awarded to attract qualified contractors who may otherwise not be willing to accept the risks inherent in a guaranteed bid price.

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $310,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $190,000 are allocated based on the number of employees. The costs of operating departments A and B are $200,000 and $300,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: Production Support DepartmentsDepartments Using the direct method, what amount of Maintenance Department costs will be allocated to Department A? (Do not round any intermediary calculations.)

The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 80,000 technician hours and by the Small Plane Department was 120,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Cost-plus contracts negotiated with suppliers of the government usually involves ________.

Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: What is the complete reciprocated cost of the Maintenance Department? (Do not round any intermediary calculations.)