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

Answer the following questions using the information below: Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows: -Using the step-down method,what amount of Warehouse Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

The single-rate method makes no distinction between __________ costs.

Explain why organisations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Which of the following methods is LEAST likely to cause disputes among product managers?

Software For You encounters revenue-allocation decisions with its bundled product sales.Here,two or more units of the software are sold as a single package.Managers at Software For You 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 Selling Price Cost Word Processing (WP) \ 125 \ 18 Spreadsheet (SS) \ 150 \ 20 Accounting Software (AS) \ 225 \ 25 Package Packaged Price WP \& SS \ 220 WP \& AS \ 280 All three \ 380 Required: _____________________________________________________________________________________________ a. Using the stand-alone revenue-allocation method, allocate the $\$ 380$ packaged price of "All Three' to the three software products: 1. with selling prices as the weights 2. with individual product costs as the weights 3. based on physical units b. $\quad$ Allocate the $\$ 380$ packaged price of 'All Three' to the three software products using the incremental revenue-allocation method. Assume Word Processing is the primary product, followed by Spread sheet, and then Accounting Software. _____________________________________________________________________________________________

When do special cost-allocation problems arise?

When __________ usage is the allocation base,user divisions know their allocated costs in advance.

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 Small Plane Department? Assume budgeted usage is used to allocate 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 single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Night Light Division?

South Australian Fig Company has substantial fluctuations in its production costs because of the seasonal nature of fig production. Would you recommend an actual or budgeted allocation base? Why? Would you recommend calculating monthly,seasonal,or annual allocation rates? Why? _____________________________________________________________________________________________ _____________________________________________________________________________________________

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 physical units as the weight for revenue allocation,what amount will be allocated to the refrigerator?

Nisota Motors is a small motor supply outlet that sells motors to companies that make various small motorised 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: Forecast Actual Sales for First Quarter 5000 4850 Sales for Second Quarter 8000 7900 Sales for Third Quarter 8000 8125 Sales for Fourth Quarter 3000 3125 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. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Similar to cost allocation,revenue allocation occurs when costs are related to a particular revenue object but cannot be traced to it in an economically feasible (cost-effective)way.

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

Which of the following methods ranks individual products in a bundle for revenue allocation?

When allocations are based on ________ usage,user divisions will not know their fixed-cost allocations until the end of the budget 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 step-down method,what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A big benefit of the single-rate method is that it signals to division managers how variable costs and fixed costs behave differently.

When budgeted cost-allocation rates are used,user-division managers face uncertainty about the allocation rates for that budget 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 Personnel Department costs will be allocated to Department A?