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

The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the fabrication department using the direct 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):

If a budgeted activity base is used as the base in cost allocation, each department's cost allocation will be predictable, and not influenced by the:

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the sales department using the direct 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):

The most effective basis for cost allocation exists when which one of the following can be determined?

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

Garrison Co. produces three products — X, Y, and Z — 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. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.The amount of joint costs allocated to product Y using the sales value at split-off 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?

When significant differences exist in costs allocated to production departments, cost management should use what method to find a more accurate cost allocation?

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the sales 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):

Garrison Co. produces three products — X, Y, and Z — 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. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.The amount of joint costs allocated to product Y 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):

The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the fabrication department using the step method is (assume the purchasing department goes first; calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

An overhead cost that can be traced directly to either a service or production department:

Cost allocation of shared facilities cost is intended to remind managers of:

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

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.

Net Realizable Value (NRV) of a product is:

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the finishing 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):

Harmon Inc. produces joint products L, M, and N from a joint process. Information concerning a batch produced in May at a joint cost of $75,000 was as follows:The amount of joint costs allocated to product M 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):

Garrison Co. produces three products — X, Y, and Z — 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. Last year all three products were processed beyond split-off. Joint production costs for the year were $120,000. Sales values and costs needed to evaluate Garrison's production policy follow.The amount of joint costs allocated to product Z 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):

The Long Term Care Plus Company has two service departments — actuarial and premium rating, and two operations departments — marketing and sales. The distribution of each service department's efforts to the other departments is shown below:The total cost accumulated in the sales department using the step 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; assume that the actuarial department goes first):