Exam 15: Allocation of Support Activity Costs and Joint Costs

Pattinson Limited has two service departments (Human Resources and Public Relations) and two production departments (Assembly and Finishing). The number of employees in each department follows. Human Resources 20 Public Relations 30 Assembly 120 Finishing 200 Pattinson uses the direct method of cost allocation and allocates cost on the basis of employees. If Public Relations cost amounts to $2,000,000, how much of the department's cost would be allocated to Assembly?

Mission Mars Incorporated 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?

When the step-down method is used, the service department whose costs are allocated first is often the department that:

Victoria Manufacturing Co. manufactures two products (A and B) from a joint process that cost $200,000 for the year just ended. 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. Further information follows. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { If Processed Further }$ Product Produced Product Produced Sales Price Sales Value Separable Cost A 20,000 \ 12 \ 350,000 \ 90,000 B 30,000 8 300,000 60,000 If the joint costs are allocated based on the physical-units method, the amount of joint cost assigned to product A would be:

Florek Inc. allocates joint costs by using the net-realizable-value method. In the company's Chicago plant, products 1 and 2 emerge from a joint process that costs $310,000. Product 2 is then processed at a cost of $320,000 into products 3 and 4. Data pertaining to 1, 3, and 4 follow. Costs beyond split-off \ 30,000 \ 12,000 \ 18,000 Selling price 30 34 60 Pounds produced 10,000 2,000 3,000 Required: A. Allocate the $320,000 processing cost between products 3 and 4. Round to the nearest whole dollar. B. From a profitability perspective, should product 2 be processed into products 3 and 4? Show your calculations. C. Assume that the net realizable value associated with 2 is zero. How would you allocate the joint cost of $25310,000?

Hilton Hamlet Corp. has an Advertising Department and a Human Resources Department that provide service to three store locations. The Human Resources Department cost is allocated on the basis of employees, and the Advertising Department cost is allocated on the basis of space. The following information is available: Human Resources Advertising Store \#1 Store \#2 Store \#3 Budgeted Cost \ 30,000 \ 15,000 Space in Square 2,000 500 10,000 33,000 40,000 feet Number of 10 5 20 50 35 Employees Using the step-down method and assuming Human Resources cost is allocated first, the amount of Advertising cost allocated to Store #2 is:

Higgins Corporation manufactures two chemicals (Flextra and Hydro) in a joint process. Data from a recent month follow. Direct materials used: $360,000 Direct labour: $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

When allocating joint costs, Grimsby Company calculates the final sales value of the various products manufactured and subtracts appropriate separable costs. The company is using the:

Rocky Mountain 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: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { If Processed Further }$ Units Salcs Valuc Product Madc al Spli-oll X 9.000 S40.000 Y 6.000 80.000 Sales Separable Value Cosis \ 78.000 \ 10.500 90.000 7.500 If the joint production costs are allocated based on the physical-units method, the amount of joint cost assigned to product X would be:

Burlington 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: W X Separable processing costs \ 40,000 \ 160.000 Sales price (per gallon) if processed beyond split-off \ 14 \ 12 The joint cost allocated to W under the net-realizable-value method would be:

Southside General 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?

Douglas 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 Douglas 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. Allocate the joint costs assuming the company uses the net-realizable-value method. B. Assume that Douglas 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.

Hunt Corporation has two service departments (S1 and S2) and two production departments (P1 and P2), and uses the step-down method of cost allocation. Management has determined that S1 provides more service to the firm than S2, and has decided that the number of employees is the best allocation base to use for S1. The following data are available: Department Number of Employees S1 10 S2 20 P1 50 2 70 Which of the following statements is (are) true if S1 and S2 have respective operating costs of $280,000 and $350,000?

The joint-cost allocation method that recognizes the revenues at split-off but does not consider any further processing costs is the:

Snakesaw Inc. has two service departments (S1 and S2) and two production departments (P1 and P2). S1 and S2 both use the number of employees as an allocation base. The following data are available: Number of S1 40 \ 172,000 S2 60 250,000 P1 300 660,000 P2 500 840,000 Required: A. Assuming use of the direct method: 1. Over how many employees would S1's budgeted cost be allocated? 2. How much of S2's cost would be allocated to P1? 3. How much of P1's cost would be allocated to S1? B. Assuming use of the step-down method: 1. How much of S1's cost would be allocated to S2? Navan allocates S1's costs prior to allocating those of S2. 2. How much of S2's total cost would be allocated to P2? 3. How much of S2's total cost would be allocated to S1?

Which of the following methods accounts for 100% of the services that occur between service departments?

Pitt Productions Company has two service departments (Accounting and Admin. and Public Relations) and two production departments (Set Assembly and Productions). The company allocates Public Relations cost on the basis of square footage and Accounting and Admin. cost on the basis of employees, and believes that Public Relations provides more service than Accounting and Admin. The square footage and employees in each department follows. Square Employees Footage Accounting and Admin. 2,000 15 Public Relations 11,000 20 Set Assembly 17,000 60 Productions 30,000 200 Assuming use of the step-down method, which of the following choices correctly denotes the number of square feet and employees over which the Public Relations and Accounting and Admin. cost would be allocated respectively?

When allocating service department costs, companies should use:

Rocky Mountain 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: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { If Processed Further }$ Units Salcs Valuc Product Madc al Spli-oll X 9.000 S40.000 Y 6.000 80.000 Sales Separable Value Cosis \ 78.000 \ 10.500 90.000 7.500 If the joint production costs are allocated based on the relative-sales-value method, the amount of joint cost assigned to product X would be:

The Scarsdale Clinic has two service departments (S1 and S2) and two "production" departments (P1 and P2). The service departments service the "production" departments as well as each other, and studies have shown that S2 provides the greatest amount of service. Which one of the following choices correctly denotes an allocation that would occur under the direct method?