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 cost will be allocated to the Night Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

When budgeted cost-allocations rates are used:

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 allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Campaign Printing has two service departments, S1 and S2, and two production departments, P1 and P2. The data for May were as follows: Required: a. Set up algebraic equations in linear form for each activity. b. Determine total costs for each department by solving the equations from part (a)using the reciprocal method.

The Pitt Corporation has been outsourcing data processing in the belief that such outsourcing would reduce costs and increase corporate profitability. In spite of this, there has been no meaningful increase in corporate profitability. Previously, Pitt used a single-rate method to allocate data processing costs. A per unit cost for data processing was computed and compared to the price of the outside supplier. The price of the outside supplier was lower, so the outside bid was accepted. Required: Formulate a possible reason why Pitt's profitability has not shown improvement in terms of the cost allocation method used.

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

Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer 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 $350,000, while the Enrollment Services budget is $950,000. 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, Engineering and Computer Sciences.

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 cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.

Answer the following questions using the information below: The Salmon Bay Corporation currently uses a manufacturing facility costing $200,000 per year; 80% of the facility's capacity is currently being used. A start-up business has proposed a plan that would utilize the other 20% of the facility and increase the overall costs of maintaining the space by 5%. -If the stand-alone method were used, what amount of cost would be allocated to the start-up business?

Answer the following questions using the information below: Jake's Battery Company has two service departments, Maintenance and Personnel. Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $80,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: -Using the direct method, what amount of Maintenance Department costs will be allocated to Department A?

The direct allocation method incorporates mutual services provided among all support departments.

When budgeted cost-allocation rates are used, variations in actual usage by one division affect the costs allocated to other divisions.

Marvelous Motors is a small motor supply outlet that sells motors to companies that make various small motorized appliances. The fixed operating costs of the company are $300,000 per year. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to the motors and wants to review the company status on a quarterly basis. The shareholder is trying to determine whether the costs should be allocated each quarter based on the 25% of the annual fixed operating costs ($75,000)or by using an annual forecast budget to allocate the costs. The following information is provided for the operations of the company: Required: a. What amount of fixed operating costs are assigned to each motor by quarter when actual sales are used as the allocation base and $75,000 is allocated? b. How much fixed cost is recovered each quarter under requirement a.? c. What amount of fixed operating costs are assigned to each motor by quarter when forecast sales are used as the allocation base and the rate is calculated annually as part of the budgetary process? d. How much fixed cost is recovered each quarter under requirement c.? e. Which method seems more appropriate in this case? Explain.

When using the single-rate method, fixed cost allocation may be based on:

The method that allocates costs by explicitly including all the services rendered among all support departments is the:

Which of the following departments is NOT a support department for a boat manufacturing company?

Answer the following questions using the information below: Buzz's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows: -Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be allocated to Math Fun in the package that contains all three products?

The step-down method allocates support department costs to other support departments and to operating departments in a sequential manner.

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): -Which of the following linear equations represents the complete reciprocated cost of the Data Processing 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 single-rate cost-allocation method is used, what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate copying costs.