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

A disadvantage of the _________ method is that it ignores information about reciprocal services provided between Support departments and can therefore lead to inaccurate estimates of the cost of operating departments.

When actual cost-allocations rates are used:

A popular __________ sequence begins with the support department that renders the highest percentage of its total services to other support departments.

Which of the following is the method that allocates costs by explicitly including all the services rendered among all support departments?

The Maintenance Department has been servicing Bondi Production for four years.Beginning next year,the company is adding a Scrap-Processing Department to recycle the materials from Bondi Production.As a result,maintenance costs are expected to increase from $480 000 per year to $500 000 per year.The Scrap-Processing Department will use 25% of the maintenance efforts. Required: a.Using the stand-alone cost-allocation method,identify the amount of maintenance cost that will be allocated to Bondi Production and the Scrap-Processing Department next year. b.Using the incremental cost-allocation method,identify the amount of maintenance cost that will be allocated to Bondi Production and the Scrap-Processing Department next year. _____________________________________________________________________________________________ _____________________________________________________________________________________________

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 Data centre 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 ___________ cost-allocation method determines the weights for cost allocation by considering each user of the cost as a separate entity.

The price of a(n)____________ product is typically less than the sum of the prices of the individual products sold separately.

The areas of dispute between the contracting parties regarding cost allocation can be reduced by making the 'rules of the game' explicit and in writing at the time the contract is signed.

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

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 single-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

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 calculated and compared to the price of the outside supplier.The price of the outside supplier was lower,so the outside bid was accepted. Required: Explain why Pitt's profitability has not shown improvement in terms of the cost-allocation method used. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Answer the following questions using the information below: The Carpentaria Corporation currently uses a manufacturing facility costing $550 000 per year;80% of the facility's capacity is currently being used.A start-up business has proposed a plan that would utilise 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?

Armidale University offers only high-tech graduate-level programs.Armidale 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 $500 000,while the Enrollment Services budget is $1 200 000.The following chart summarises budgeted amounts and allocation-base amounts used by each department: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Services Provided (Annually) }$ Budget Engineering Computer Sciences F\&T Maintenance Enrollment Services F\& T Maintenance (in hours) \ 500000 2000 5000 Zero 1000 Enrollment Services (incredit hrs) \ 1200000 24000 36000 2000 Zero - 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: 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 Maintenance Department?

The step-down allocation method:

The Homebush Tennis Corporation operates one central plant that has two divisions,the Spot Light Division and the Lamp Division.The following data apply to the coming budget year: Budgeted costs of the operating the plant for 10000 to 20000 hours: Fixed operating costs per year $\$ 240000$ Variable operating costs $\$ 10$ per hour Practical capacity20 000 hours per year Budgeted long-run usage per year: Lamp Division 800 hours $\times 12$ months $= 9600$ hours per year Spot Light Division $\quad 450$ hours $\times 12$ months $= 5400$ hours per year Assume that practical capacity is used to calculate the allocation rates.Further assume that actual usage of the Lamp Division was 700 hours and the Spot Light Division was 400 hours for the month of June. Required: a.If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Spot Light Division each month? b.For the month of June,if a single-rate cost-allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Spot Light Division? Assume actual usage is used to allocate operating costs. c.If a dual-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Spot Light Division each month? d.For the month of June,if a dual-rate cost-allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Spot Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs. _____________________________________________________________________________________________ _____________________________________________________________________________________________