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

A company sells a software suite that includes a word processor and spreadsheet applications.The suite sells for $250 and the items are also available separately for $200 (spreadsheet)and $170 (word processor).The spreadsheet app is by far the best seller of the standalone product sales.Using the incremental-revenue allocation method and assuming that the spreadsheet is the primary product,how much of the $250 revenue from the bundled product sale would be allocated to the spreadsheet and to the word processing products?

Software For You encounters revenue-allocation decisions with its bundled product sales.Here,two or more units of the software are sold as a single package.Managers at Software For You are keenly interested in individual product-profitability figures.Information pertaining to its three bundled products and the stand-alone selling prices of its individual products is as follows: Required: a.Using the stand-alone revenue-allocation method,allocate the $380 packaged price of "All Three" to the three software products b.Allocate the $380 packaged price of "All Three" to the three software products using the incremental revenue-allocation method.Assume Word Processing is the primary product,followed by Spreadsheet,and then Accounting Software.

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

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 150,000 to 250,000 technician hours per year: Budgeted long-run usage in hours per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 80,000 technician hours and by the Small Plane Department was 120,000 technician hours.If a dual-rate cost-allocation method is used,what amount of materials laboratory costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract.What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?

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?

The costs of unused capacity are highlighted when ________.

Goldfarb's Book and Music Store has two service departments,Warehouse and Data Center.Warehouse Department costs of $320,000 are allocated on the basis of budgeted warehouse-hours.Data Center Department costs of $180,000 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 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?

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.

Illumination 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 operating the plant for 2000 to 3000 hours: Budgeted long-run usage per year: Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1500 hours and by the Night Light Division was 800 hours.If a dual-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Night Light Division?

Which of the following is a disadvantage of single-rate method?

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: Budgeted long-run usage in hours per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 60,000 technician hours and by the Small Plane Department was 80,000 technician hours.If a single-rate cost-allocation method is used,what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate laboratory costs.

Illumination 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 operating the plant for 2000 to 3000 hours: Budgeted long-run usage per year: Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1400 hours and by the Night Light Division was 700 hours.If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Flashlight Division?

Both direct and the step-down method can provide relevant information for outsourcing decisions.

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 300,000 to 500,000 copies: Budgeted long-run usage in copies per year: Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 120,000 copies and by the Operations Department was 360,000 copies.If a dual-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

Hanung Corp has two service departments,Maintenance and Personnel.Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $200,000 are allocated based on the number of employees.The costs of operating departments A and B are $208,000 and $312,000,respectively.Data on budgeted maintenance-hours and number of employees are as follows: 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? (Do not round any intermediary calculations. )

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

The method that allocates each department's budgeted costs to operating departments only is called ________.

If the incremental users are newly formed companies or subunits,the incremental method may decrease their chances for short-run survival by assigning them a high allocation of the common costs.