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

The single-rate method transforms the direct costs per hour into indirect costs to users of that facility.

Under the step-down method,once a support department's costs have been allocated,all subsequent support-department costs are allocated back to it.

When actual cost-allocation rates are used,user-division managers face uncertainty about the allocation rates for that budget period.

When actual cost-allocation rates are used,managers of the supplier division are motivated to improve efficiency.

The Shapley value method of allocating common costs considers each party as first the primary party and then the incremental party and computes an average allocation.

Answer the following questions using the information below: Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows: Support Departments Production Departments Warehouse Department Data Center Department Music Books Budgeted costs \ 350,000 \ 150,000 \ 125,000 \ 150,000 Budgeted warehouse-hours NA 500 1,000 1,500 Number of computer hours 200 NA 800 1,000 -Using the direct method,what amount of Warehouse Department costs will be allocated to Department Books?

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 -Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?

The stand-alone method of allocating determines the weights for cost allocation by considering each user of the cost as a separate entity.

Under the dual-rate cost-allocation method,when fixed costs are allocated based on actual usage then ________.

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 B if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

Under the incremental method,the primary user usually receives the highest allocation of the common costs.

If the government wants to contract a very large scale project with significant uncertainty about what the final cost will be; often a cost-plus contract is awarded to attract qualified contractors who may otherwise not be willing to accept the risks inherent in a guaranteed bid price.

Answer the following questions using the information below: Illumination Corp 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 operating the plant for 2,000 to 3,000 hours: Fixed operating costs per year \ 500,000 Variable operating costs \ 800 per hour Budgeted long-run usage per year: 2,000 hours Flashlight Division 1000 hours Night Light Division 4,000 hours Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1,500 hours and by the Night Light Division was 800 hours. -If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Flashlight Division?

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 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: 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 allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

Foodiez Inn is a fast-food restaurant that sells burgers and hot dogs in a 1980s environment.The fixed operating costs of the company are $10,000 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: Burgers Hot Dogs Sales for January 4,000 2,500 Sales for February 6,500 2,500 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.

The single cost-allocation method makes no distinction between fixed and variable costs.

The price of a bundled product is typically more than the sum of the prices of the individual products sold separately.

Craylon Corp has two service departments,S1 and S2,and two production departments,P1 and P2. The data for April were as follows: Services provided to: Activity Costs S1 S2 P1 P2 S1 \ 100,000 20\% 40\% 50\% S2 \ 80,000 10\% 55\% 25\% Fixed Costs P1 \ 400,000 P2 \ 500,000 Required: a.Set up algebraic equations in linear form for each activity. b.Determine total costs for each department by solving the equations from part (a)using the reciprocal 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 incremental method,what amount of revenue will be allocated to Math Fun in the package that contains all three products? Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.