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

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 Data Processing Department?

The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually.Variable costs are incurred at the rate of $30 per maintenance-hour.The facility averages 40,000 maintenance-hours a year.Budgeted and actual hours per user for 20X3 are as follows: Budgeted hours Actual hours Building and grounds 10,000 12,000 Operating and emergency 8,000 8,000 Patient care 21,000 22,000 Administration 1,000 1,200 Total 40,000 43,200 Assume that budgeted maintenance-hours are used to calculate the allocation rates. Required: a.If a single-rate cost-allocation method is used,what amount of maintenance cost will be budgeted for each department? b.If a single-rate cost-allocation method is used,what amount of maintenance cost will be allocated to each department based on actual usage? c.If a dual-rate cost-allocation method is used,what amount of maintenance cost will be budgeted for each department? d.If a dual-rate cost-allocation method is used,what amount of maintenance cost will be allocated to each department based on actual usage? Based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

Jonathan has managed a downtown store in a major metropolitan city for several years.The firm has ten stores in varying locations.In the past,senior management noticed Jonathan's work and he has received very good annual evaluations for his management of the store. This year his store has generated steady growth in sales,but earnings have been deteriorating.After examining the monthly performance report generated by the company budgeting department,he noticed that increasing fixed costs is causing the decrease in earnings. Administrative corporate costs,primarily fixed costs,are allocated to individual stores each month based on actual sales for that month.Two of these stores are currently growing at a rapid pace,while four other stores are having operating difficulties. Required: From the information presented,what do you think is the cause of Jonathan's reported decrease in earnings? How can this be corrected?

The method that ranks individual products in a bundle for revenue allocation is the ________.

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 dual-rate cost-allocation method is used,what amount of cost will be allocated to the Night Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

The single-rate cost-allocation method may base the denominator choice on ________.

The dual cost-allocation method classifies costs into two pools,a budgeted cost pool and an actual cost pool.

The dual-rate cost-allocation method classifies costs in each cost pool into a ________.

An example of a bundled product is when a computer software manufacturer charges a single price for the spreadsheet,word processing,and presentation software on the same CD.

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 for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product,followed by Math Fun,and then Analysis.

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 cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.

What is an operating department and how is it different from a support department? Give examples of each.

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 Maintenance Department costs will be allocated to Department A?

The direct method is conceptually the most precise method because it considers the mutual services provided among all support departments.

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 Maintenance Department costs will be allocated to Department B?

The step-down method allocates support department costs to only operating departments in a sequential manner.

In certain high-cost defense contracts involving new weapons and equipment,contracts are rarely subject to competitive bidding because ________.

Van Meter Fig Company has substantial fluctuations in its production costs because of the seasonality of figs. 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: 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 step-down method,what amount of Data Center Department cost will be allocated to the Warehouse Department if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

Explain three approaches to determining weights for the the stand-alone revenue-allocation.Which method do managers prefer?