Exam 7: Cost Allocation: Departments, Joint Products, and By-Products

The amount of joint costs allocated to product N using the physical measure method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Ted Brown is the chief financial officer of Haywood Inc., a large manufacturer of cosmetics and other personal care products. Ted is conducting a financial analysis of the firm's line of hand lotions which consists of three products: SkinSalve, SkinCream, and SkinBalm. Total sales for the three products in the recent year were $400,000, $250,000 and $500,000, respectively. Because there is a small amount of additional processing cost for each of the three products, which differs between the products ($20,000, $50,000 and $30,000, respectively), Ted has been using the net realizable value method for allocating the joint production cost of $500,000. However, he is not satisfied with the result of somewhat different gross margin percentage ratios (gross margin/sales) for the three products when using this approach. He knows only of the physical units method, the sales value at split-off method, and the net realizable value method for allocating joint cost. Required: Devise a new method of cost allocation for Ted so that after allocation of joint costs and separable costs, the gross margin percentage is the same for all three products.

The amount of joint costs allocated to product DBB-3 using the physical measure method is (calculate all ratios and percentages to 2 decimal places, for example 33.33%, and round all dollar amounts to the nearest whole dollar):

Which of the following is an advantage of the sales value at split-off method?

The total cost accumulated in the assembly department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Cost allocation is an important strategic issue for U.S. manufacturing firms is with foreign subsidiaries because of:

The departmental approach of cost allocation recognizes that the typical manufacturing operation involves which type(s) of departments?

Allocation of service department costs to producing departments is the most complex of the allocation phase of departmental cost allocation because of the likely presence of:

By-product costing approaches include:

Place the following phases of the departmental approach in the correct order. 1. Allocate the production department costs to products. 2) Allocate service costs to the overhead costs. 3) Allocate the service department costs to the production department. 4) Trace all direct costs and allocate overhead costs to both the service and production departments.

The direct method of departmental cost allocation ignores:

The amount of joint costs allocated to product Y using the net realizable value method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

The reciprocal method of departmental cost allocation is preferred over the step method because it takes into account all the reciprocal flows between:

Joint products are products that:

The total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Beth Johnson was recently appointed Vice President of Administration in the Sigma Group, a nationwide personal financial planning services firm. Ann Garber, department manager, has just finished reading the most recent memo from VP Johnson, which reads in part: In order to more efficiently apportion the costs of hard copy duplication, departments will be charged $0.075 per page for all duplicated materials. This new rate replaces the two-tier rate structures of $0.05 and $0.10 per page, and is effective as of the date of this memo. The two tier system was used to charge a higher rate for the more difficult jobs. "What is she trying to do?" Ann asks. "This new price will drive up my department's duplicating costs so much that we'll have to cut back on how much stuff we have duplicated." Required: a. What is the control advantage of any multi-tier pricing (costing) system versus a single price (cost) system? b. If the new price for duplication reduces total usage of duplicating services, are there any significant disadvantages to such a reduction in usage?