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

Answer the following questions using the information below: The Laserlight Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year: Budgeted costs of operating the plant for 2,000 to 3,000 hours: Budgeted long-run usage per year: Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1,400 hours and by the Night Light Division was 600 hours. -If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Night Light Division?

Answer the following questions using the information below: The Quickjet 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 costs of operating the materials laboratory for 100,000 to 200,000 technician hours per year: Budgeted long-run usage in hours per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 60,000 technician hours and by the Small Plane Department was 65,000 technician hours. -If a single-rate cost-allocation method is used, what is the allocation rate per hour used?

Answer the following questions using the information below: The Charmatz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year: Budgeted costs of operating the copying facility for 400,000 to 600,000 copies: Budgeted long-run usage in copies per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies. -If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department?

Answer the following questions using the information below: Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: By Maintenance (budgeted labor-hours): By Personnel (Number of employees serviced): -What is the complete reciprocated cost of the Personnel Department?

Revenue allocation based on the number of physical units is only appropriate when individual products in the bundle are of equal value.

Answer the following questions using the information below: Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: By Plant Maintenance (budgeted labor-hours): By Data Processing (budgeted computer time): -What is the complete reciprocated cost of the Plant Maintenance Department?

Blaster Drive-In is a fast-food restaurant that sells burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 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 most common method to allocate support department costs is to employ actual rates based on the costs realized during the period.

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract. What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?

Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.

Answer the following questions using the information below: Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows: -Using the direct method, what amount of Data Center Department costs will be allocated to Department Music?

Answer the following questions using the information below: Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: By Maintenance (budgeted labor-hours): By Personnel (Number of employees serviced): -Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?

Answer the following questions using the information below: The Quickjet 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 costs of operating the materials laboratory for 100,000 to 200,000 technician hours per year: Budgeted long-run usage in hours per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 60,000 technician hours and by the Small Plane Department was 65,000 technician hours. -If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Small Plane Department?

In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because:

The cost-allocation method that allocates support department costs only to production departments is the:

Which of the following departments is NOT an operating (or value added)department?

Why would businesses want to sell bundled products? What benefits, if any, are there for the consumer?

Answer the following questions using the information below: The Laserlight Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year: Budgeted costs of operating the plant for 2,000 to 3,000 hours: Budgeted long-run usage per year: Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1,400 hours and by the Night Light Division was 600 hours. -If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Flashlight Division?

Answer the following questions using the information below: Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows: -Using the direct method, what amount of Warehouse Department costs will be allocated to Department Books?

The revenue allocation may be weighted using physical units when: