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

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: Services Provided: (Annually) Budget Engineering Computer Sciences F\&T Maintenance Enrollment Service Engineering \ 3,500,000 Computer Sciences \ 1,400,000 F\& T Maintenance in hours) \ 350,000 2,000 1,000 Zero 5,000 Enrollment Service in credit hrs) \ 950,000 24,000 36,000 2,000 Zero Required: a.Set up algebraic equations in linear equation form for each activity. b.Determine total costs for each department by solving the equations from part (a)using the reciprocal method. (Engineering= Eng; Computer Sciences = CS; Facility and Technical Maintenance = FTM; Enrollment Service = ES)

The stand-alone cost allocation method ranks the individual users of a cost object in order of users most responsible for a common cost and then uses these rankings to allocate the costs among the users.

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

When budgeted cost-allocations rates are used ________.

The reciprocal allocation method ________.

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: Stand-Alone Selling Price Cost Package Packaged Price Reading Fun \ 25 \ 3.60 1. Reading Fun \& Math Fun \ 44 Math Fun \ 30 \ 4.00 2. Reading Fun \& Analysis \ 56 Analysis \ 45 \ 5.00 3. All three \ 76 -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 direct allocation method ________.

Answer the following questions using the information below: Electro Corp sells a refrigerator and a freezer as a single package for $1,000. Other data are in the chart below. Refrigerator Full-size Freezer Packaged Price Selling price \ 800 \ 400 \ 1,000 Manufactuing cost per unit \ 600 \ 200 Stand-alone product revenues \ 1,200,000 \ 800,000 -Using the stand-alone method with physical units as the weight for revenue allocation,what amount will be allocated to the refrigerator?

The Alex Miller 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 the operating the plant for 10,000 to 20,000 hours: Fixed operating costs per year \ 240,000 Variable operating costs \ 10 per hour Practical capacity 20,000 hours per year Budgeted long-run usage per year: Lamp Division 800 hours \times12 months = 9,600 hours per year Flashlight Division 450 hours \times12 months = 5,400 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 Flashlight 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 Flashlight 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 Flashlight 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 Flashlight 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 Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

The costs of unused capacity are highlighted when ________.

When budgeted fixed costs are allocated based on actual usage,user departments will not know their fixed-cost allocations until the end of the budget period.

All contracts with U.S.government agencies must comply with the cost accounting standards issued by the SEC.

A cost of operating a facility,department,activity area,or like cost object that is shared by two or more users is called a ________.

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 Small Plane Department?

The cost-allocation method that allocates each support-department's costs to operating departments only is the ________.

To discourage unnecessary use of a support department,management might ________.

Tours Corp offers towing services,auto routing,travel brochures,and other travel services for one annual fee.This is an example of ________.

Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.

There is uncertainty in defense contracts about the final cost to produce a new weapon or equipment.Explain.

What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?