Exam 14: Allocation of Support-Department Costs, Common Costs and Revenues

An equivalent approach to implementing the direct method involves calculating a budgeted rate for each support department's costs.

Give examples of bundled products for each of the following industries: a.Resort hotel b.Bank c.Restaurant d.Computer store e.Service station/convenience store f.Software manufacturer _____________________________________________________________________________________________ _____________________________________________________________________________________________

Flinders Street 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 $5000 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: BurgersHot Dogs Sales for January 4000 2400 Sales for February 6400 2400 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. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: The Launceston Copy 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 200 000 to 300 000 copies: Fixed costs per year $\quad \$ 40000$ Variable costs 3 cents (.03) per copy Buageted long-nu usage in copies per year: Marketing Department 75000 copies Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies. -If a dual-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

The stand-alone method of allocating common costs emphasises fairness and equity among users.

One benefit of the dual-rate method is the low cost to implement it.

Companies commit to infrastructure costs (e.g.the fixed costs of a support department)on the basis of a ________ planning period.

Answer the following questions using the information below: Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,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?

Wentworth Video Parlour encounters revenue-allocation decisions with its bundled product sales.Here,two or more of the movie DVDs are sold as a single package.Managers at Wentworth are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows: Stand-Alone Cost Selling Price New Releases \ 15 \ 2.00 Older Releases \ 10 \ 1.50 Classics \ 8 \ 1.25 Package Packaged Price New \& Older \ 20 New \& Classics \ 17 All three \ 25 Required: a.With selling prices as the weights,allocate the $25 packaged price of 'All Three' to the three DVDs using the stand-alone revenue-allocation method. b.Allocate the $25 packaged price of 'All Three' to the three types of DVDs using the incremental revenue-allocation method.Assume New Releases is the primary product,followed by Older Releases,and then Classics. _____________________________________________________________________________________________ _____________________________________________________________________________________________

What is the biggest advantage of using practical capacity to allocate costs?

The dual-rate cost-allocation method classifies costs in each cost pool into a:

Answer the following questions using the information below: The Outback Aerial Medicorp has a central materials area (CMA).The CMA 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 CMA for 10000 to 20000 technician hours per year: Fixed costs per year $\$ 600000$ Variable costs $\$ 100$ per technician hour Budgeted long-run usage in hours per year: Large Plane Department 9000 technician hours Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours. -If a dual-rate cost-allocation method is used,what amount of CMA costs will be budgeted for the Small Plane Department?

Answer the following questions using the information below: The Outback Aerial Medicorp has a central materials area (CMA).The CMA 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 CMA for 10000 to 20000 technician hours per year: Fixed costs per year $\$ 600000$ Variable costs $\$ 100$ per technician hour Budgeted long-run usage in hours per year: Large Plane Department 9000 technician hours Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours. -If a dual-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed CMA costs and actual usage is used to allocate variable CMA costs.

Answer the following questions using the information below: Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year: Budgeted costs of operating the plant for 2000 to 3000 hours: Fixed operating costs per year $\$ 900000$ Variable operating costs $\$ 1200$ perhour Budgeted long-run usage per year: Night Light Division 2000 hours HalfLight Division 500 hours Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours. -If a dual-rate cost-allocation method is used,what amount of cost will be allocated to the HalfLight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Which of the following is an example of a revenue object?

Answer the following questions using the information below: Canberra Home Appliances sells a refrigerator and a freezer as a single package for $1100.Other data are in the chart below. Refrigerator Full-size Freezer Packaged Price Selling price \ 925 \ 450 \ 1100 Manufactuning cost per unit \ 620 \ 220 Stand-alone product reverues \ 1225000 \ 775000 -Using the stand-alone method with manufacturing cost per unit as the weight for revenue allocation,what amount will be allocated to the refrigerator?

Answer the following questions using the information below: Mark,owner of Waugh Fiberglass Fabricators is interested in using the reciprocal allocation method.The following data from operations were collected for analysis: Buigeted manuficturing overhead costs: Flant Maintenance PM (Support Dept) \ 350000 Data Frocessing DP (Support Dept) \ 75000 Machining M (Operating Dept) \ 225000 Capping C (Operating Dept) \ 125000 Services furnished: By Plant Maintenance (budgeted labour-hours): to Data Processing 3500 to Machining 5000 to Capping 8200 By Data Frocessing (bud geted computer time): to Flant Maintenance 600 to Machining 3500 to Capping 600 -Which of the following linear equations represents the complete reciprocated cost of the Data Processing Department?

Answer the following questions using the information below: Dawn,owner of Fraser Fabric Pty Ltd is interested in using the reciprocal allocation method.The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Maintenance (Support Dept) \ 150000 Personnel (Support Dept) \ 65000 Weaving W(Weaving Dept) \ 325000 Colourising C (Colourising Dept) \ 175000 Services furnished: By Maintenance (budgeted labour-hours): to Persontrel 500 to Weaving 3500 to Colourising 2000 By Personnel (number of employees serviced): Plant Maintenance 5 Weaving 15 Colourising 10 -What is the complete reciprocated cost of the Personnel Department?

Answer the following questions using the information below: The Launceston Copy 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 200 000 to 300 000 copies: Fixed costs per year $\quad \$ 40000$ Variable costs 3 cents (.03) per copy Buageted long-nu usage in copies per year: Marketing Department 75000 copies Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies. -If a dual-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Operations Department?

When the ___________ method is used,cost-allocation bases must be chosen for both the variable-cost and fixed-cost pools.