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: $\text { Budgeted manufacturing overhead costs }$ $\begin{array}{lll} \text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350,000 \\ \text { Data Processing } & \text { DP (Support Dept) } & \$ 75,000 \\ \text { Machining } & \text { M (Operating Dept) } & \$ 225,000 \\ \text { Capping } & \text { C (Operating Dept) } & \$ 125,000 \end{array}$ $\text { Services furmished: }$ $\begin{array}{ll} \text { By Plant Maintenance (bud geted labor-hours): }\\ \text { to Data Processing } & 3,500 \\ \text { to Machining } & 5,000 \\ \text { to Capping } & 8,200\\\text { By Data Processing (bud geted computer time): }\\ \text { to Plant Maintenance } & 600 \\ \text { to Machining } & 3,500 \\ \text { to Capping } & 600 \end{array}$ -What is the complete reciprocated cost of the Plant Maintenance Department?

A) $393,750 B) $369,459 C) $365,000 D) $375,773 A) $393,750 B) $369,459 C) $365,000 D) $375,773

Answer the following questions using the information below: The Speedjet 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: $\begin{array}{lll} \text { Fixed costs per year }&\$8,000,000\\ \text { Variable costs }&\$ 70 \text { per technician hour }\\ \text { Budgeted long-run usage in hours per year: }\\ \text { Large Plane Department } & 80,000 \text { technician hours } \\ \text { Small Plane Department } & 70,000 \text { technician hours } \end{array}$ Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 70,000 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 Large Plane Department?

A) $9,866,667 B) $8,226,667 C) $9,781,333 D) $9,881,333 A) $9,866,667 B) $8,226,667 C) $9,781,333 D) $9,881,333

Answer the following questions using the information below: Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 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: $\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\ &&&\text { Departments }\\ \hline& \begin{array}{c} \text { Maintenance } \\ \text { Department } \end{array} & \begin{array}{c} \text { Personnel } \\ \text { Department } \end{array} & \text { A } & \text { B } \\ \hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\ \hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\ \hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline \end{array}$ -Using the direct method,what amount of Personnel Department costs will be allocated to Department B?

A) $82,000 B) $80,000 C) $77,000 D) $75,000 A) $82,000 B) $80,000 C) $77,000 D) $75,000

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: $\text { Budgeted manufacturing overhead costs: }$ $\begin{array}{llr} \text { Maintenance } & \text { M (Support Dept) } & \$ 300,000 \\ \text { Personnel } & \mathrm{P} \text { (Support Dept) } & \$ 160,000 \\ \text { Weaving } & \text { W (Weaving Dept) } & \$ 650,000 \\ \text { Colorizing } & \mathrm{C} \text { (Colorizing Dept) } & \$ 350,000 \end{array}$ $\begin{array}{ll} \text { Services fumished: }\\ \text { By Maintenance (bud geted labor-hours): }\\ \text { to Personnel } & 1,000 \\ \text { to Weaving } & 7,000 \\ \text { to Colorizing } & 4,000\\\text { By Personnel (Number of employees serviced): }\\ \text { Plant Maintenance } & 10 \\ \text { Weaving } & 30 \\ \text { Colorizing } & 20 \end{array}$ -What is the complete reciprocated cost of the Maintenance Department?

A) $331,267 B) $326,667 C) $300,000 D) $0 A) $331,267 B) $326,667 C) $300,000 D) $0

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 $\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\\ \text { Fixed costs per year }&\$60,000\\ \text { Variable costs }&3 \text { cents }(.03) \text { per copy }\\ \text { Budgeted long-run usage in copies per year: }\\ \text { Marketing Department } & 120,000 & \text { copies } \\ \text { Operations Department } & 380,000 & \text { copies } \end{array}$ 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 single-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

A) $18,000 B) $3,600 C) $14,400 D) $16,800 A) $18,000 B) $3,600 C) $14,400 D) $16,800

Answer the following questions using the information below: Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 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: $\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\ &&&\text { Departments }\\ \hline& \begin{array}{c} \text { Maintenance } \\ \text { Department } \end{array} & \begin{array}{c} \text { Personnel } \\ \text { Department } \end{array} & \text { A } & \text { B } \\ \hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\ \hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\ \hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline \end{array}$ -Using the step-down method,what amount of Maintenance Department cost will be allocated to Department A if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

A) $100,000 B) $132,372 C) $134,472 D) $138,462 A) $100,000 B) $132,372 C) $134,472 D) $138,462

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

When allocating the revenues between a bundled product offering,management judgement can be used in issuing revenue-allocation weights.

Free

(True/False)

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Question 1

Correct Answer:

Verified

True

The step-down method ________.

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

B

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: Forecast Actual Sales for First Quarter 5,000 4,850 Sales for Second Quarter 8,000 7,900 Sales for Third Quarter 8,000 8,125 Sales for Fourth Quarter 3,000 3,125 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.

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(Essay)

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Question 3

Correct Answer:

Verified

a. Rate per unit using Actual Sales by Quarter:
Q1 $\$ 75,000 / 4,850=\$ 15.46$ per motor
Q2 $\$ 75,000 / 7,900=\$ 9.49$ per motor
Q3 $\$ 75,000 / 8,125=\$ 9.23$ per motor
Q4 $\$ 75,000 / 3,125=\$ 24.00$ per motor

b. $\$ 75,000 \text { cost is recovered each quarter } \Rightarrow \$ 300,000 \text { cost recovered over the year. }$

c.Quarterly Cost Recovery using Annual Forecast of Sales:
Forecast Sales for the year $=5,000+8,000+8,000+3,000=24,000$
Rate per motor $=\$ 300,000 / 24,000=\$ 12.50$ per motor

d.Quarterly Cost Recovery using Annual Forecast of Sales as the allocation basis:
Q1 $4,850 \times \$ 12.50=\$ 60,625$
Q2 $7,900 \times \$ 12.50=\$ 98,750$
Q3 $8,125 \times \$ 12.50=\$ 101,563$
Q4 $3,125 \times \$ 12.50=\$ 39,062 \Rightarrow \$ 300,000$ cost recovered over the year

e. The budgeted rate based on an annualized forecast of sales is more appropriate to use. The fluctuations in sales was predictable and using actual quantities per quarter to calculate the cost recovery rates would distort the objective of assigning appropriate costs to the units. There would be uncertainty in interpretation of why one quarter has a very hi gh rate per unit and another quarter has a very low rate per unit if the actual quarters fixed costs were spread to the actual units sold each quarter.

Which of the following is an advantage of the single-rate method?

(Multiple Choice)

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Question 4

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: $\text { Budgeted manufacturing overhead costs }$ Flant Maintenance PM (Support Dept) \ 350,000 Data Processing DP (Support Dept) \ 75,000 Machining M (Operating Dept) \ 225,000 Capping C (Operating Dept) \ 125,000 $\text { Services furmished: }$ By Plant Maintenance (bud geted labor-hours): to Data Processing 3,500 to Machining 5,000 to Capping 8,200 By Data Processing (bud geted computer time): to Plant Maintenance 600 to Machining 3,500 to Capping 600 -What is the complete reciprocated cost of the Plant Maintenance Department?

(Multiple Choice)

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Question 5

Answer the following questions using the information below: The Speedjet 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: Fixed costs per year \8 ,000,000 Variable costs \ 70 per technician hour Budgeted long-run usage in hours per year: Large Plane Department 80,000 technician hours Small Plane Department 70,000 technician hours Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 70,000 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 Large Plane Department?

(Multiple Choice)

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Question 6

Answer the following questions using the information below: Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 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: Support Departments Production Departments Maintenance Department Personnel Department A B Budgeted costs \ 300,000 \ 100,000 \ 160,000 \ 240,000 hudgeted maintenance- NA 800 1,200 600 hours Number of employees 50 NA 200 600 -Using the direct method,what amount of Personnel Department costs will be allocated to Department B?

(Multiple Choice)

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Question 7

Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.

(Essay)

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Question 8

An example of an allowable cost considered by U.S government contract is ________.

(Multiple Choice)

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Question 9

Answer the following questions using the information below: Harbor Corp currently leases a corporate suite in an office building for a cost of $280,000 a year. Only 80% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 20% of the suite and increase the overall costs of maintaining the space by $20,000. -If the incremental method were used,what amount of cost would be allocated to the start-up business?

(Multiple Choice)

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Question 10

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

(Multiple Choice)

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Question 11

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 and thus,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.

(Essay)

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Question 12

Managers of supplier departments ________.

(Multiple Choice)

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Question 13

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: $\text { Budgeted manufacturing overhead costs: }$ Maintenance M (Support Dept) \ 300,000 Personnel (Support Dept) \ 160,000 Weaving W (Weaving Dept) \ 650,000 Colorizing (Colorizing Dept) \ 350,000 Services fumished: By Maintenance (bud geted labor-hours): to Personnel 1,000 to Weaving 7,000 to Colorizing 4,000 By Personnel (Number of employees serviced): Plant Maintenance 10 Weaving 30 Colorizing 20 -What is the complete reciprocated cost of the Maintenance Department?

(Multiple Choice)

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Question 14

The direct allocation method ________.

(Multiple Choice)

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Question 15

Describe methods which may be used to allocate support costs within organizations containing multiple support departments.Discuss advantages and disadvantages of the various methods.

(Essay)

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Question 16

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: Fixed costs per year \6 0,000 Variable costs 3 cents (.03) per copy Budgeted long-run usage in copies per year: Marketing Department 120,000 copies Operations Department 380,000 copies 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 single-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

(Multiple Choice)

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Question 17

Answer the following questions using the information below: Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 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: Support Departments Production Departments Maintenance Department Personnel Department A B Budgeted costs \ 300,000 \ 100,000 \ 160,000 \ 240,000 hudgeted maintenance- NA 800 1,200 600 hours Number of employees 50 NA 200 600 -Using the step-down method,what amount of Maintenance Department cost will be allocated to Department A if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

(Multiple Choice)

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Question 18

Revenue allocation is required to determine the profitability of individual items within a bundled product.

(True/False)

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Question 19

The issue of "allowable costs" is applicable in government cost-plus contracts.

(True/False)

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Question 20

When allocating the revenues between a bundled product offering,management judgement can be used in issuing revenue-allocation weights.

The step-down method ________.

Which of the following is an advantage of the single-rate method?

Describe and discuss the two methods of allocating revenues of a bundled package to the individual products in that package.Describe any special problems associated with the method.

An example of an allowable cost considered by U.S government contract is ________.

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

Managers of supplier departments ________.

The direct allocation method ________.

Describe methods which may be used to allocate support costs within organizations containing multiple support departments.Discuss advantages and disadvantages of the various methods.

Revenue allocation is required to determine the profitability of individual items within a bundled product.

The issue of "allowable costs" is applicable in government cost-plus contracts.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

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