Exam 11: Service Department and Joint Cost Allocation

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting.The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours.The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department.The direct departmental costs for A and B are $300,000 and $500,000,respectively. Maint Acctg A B Machine hours 480 20 2,300 200 Number of employees 2 2 8 4 What is the Accounting Department's cost allocated to Department B using the direct method?

Boswell Consulting has two service departments: S1 and S2 and three production departments: P1,P2,and P3.Data for a recent month follow: Required: (a)Determine the allocations to the production departments when the reciprocal method is used.(b)Briefly describe why the reciprocal method is theoretically preferable to other methods of allocation.

The Mallak Company produced three joint products at a joint cost of $100,000.Two of these products were processed further.Production and sales were: Veight Sales Adit. Processing Costs 300,000. \ 245,000 \ 200,000 100,000. 30,000 -0 100,000. 175,000 100,000 What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used?

Which of the following statements is(are)false regarding the direct method of allocating service department costs? (A)The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.(B)Once an allocation is made from a service department using the direct method,no further allocations are made back to that department.

The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile.

The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of:

Which of the following statements is false regarding the use of multiple cost pools?

Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Senvice Dept Direct Costs Sq Ft Laundy Pounds Housekeeping \ 80,000 - 16,000 Laundry \ 132,000 500 Revenue Areas Surgery \ 400,000 1,500 48,000 Semiprivate Rooms \ 200,000 2,000 24,000 Maternity \ 150,000 1,000 12,000 The hospital wants to allocate the service department costs to the revenue areas.Housekeeping is allocated based on square footage;Laundry is allocated based on pounds of laundry.The normal capacity for Surgery is 200 hours per month;normal capacity for semiprivate rooms is 600 patient days;and normal capacity for maternity is 200 patient days.Required: Determine the overhead rate for the three revenue areas.Allocate the service department costs to the revenue areas using the step method.Allocate the service department with the largest dollar value first.

Palace Company has two service departments and two user departments.The number of employees in each department is: Personnel 10 Cateteria 25 Producing Department A 265 Producing Department B 560 The fixed costs of the Personnel Department are allocated on a basis of the number of employees.If these costs are budgeted at $37,125 during a given period,the amount of cost allocated to the Cafeteria under the step method would be:

If two service departments service the same number of departments,which service department's costs should be allocated first when using the step method?

One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization's service departments.

Joint costs are processing costs incurred after the split-off point in a common production process.

Allocation of factory service department costs to the production departments is necessary to:

Jack Donaldson owns and operates Jack's Abstracting Service.Jack's two revenue generating operations (Abstracting Services and Closing Services)are supported by two service departments: Clerical and Custodial.Costs in the service departments are allocated in the following order using the designated allocation bases.Clerical: number of transactions processed.Custodial: square footage of space occupied.Average and expected activity levels for next month are as follows: Numbers of Transactions Square Fodage Expected Costs Abstract services 50 1,800 Closing services 25 2,200 Clerical 1,600 \ 40,000 Custodial 5 10,000 Required: Use the direct method to allocate the service department costs to the revenue generating departments.Provide the total costs for the revenue departments.

Wimbledon Corporation has two production Departments: Assembly and Machining and two service departments: Personnel and Cafeteria.Direct costs for each department and the proportion of service costs used by the various departments for the month of July,2016 are as follows: Required: Compute the allocation of service department costs to producing departments for July,2016 using the direct-method.

Which of the following is not a reason to justify the allocation of support services?

The Macon Industries started the production of K1 (its main product)and S2 (its by-product)on January 2,2016.During 2016,7,500 units of K1 and 1,500 units of S2 were produced.In 2016,6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit,respectively.Production was halted at the end of 2016 and the inventory was sold in 2017 at the normal selling prices.The joint production costs were $240,000 and are entirely avoidable.The separable costs to produce K1 were $2.60 per unit and to produce S2 were $0.45 per unit.Operating expenses were $60,000 in 2016 and $12,000 in 2017.Required: a.Prepare an income statement for 2016 and 2017 assuming the "other revenue" method of accounting for by-products is used.b.Prepare an income statement for 2016 and 2017,assuming the "cost reduction" method of accounting for by-products is used.

Delite Confectionary Company produces various types of candies.Several candies could be sold at the split-off point or processed further and sold in a different form after further processing.The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly,which are allocated based on pounds produced.Information concerning this process for a recent month appears below: The joint processing costs in this operation:

Jack Donaldson owns and operates Jack's Abstracting Service.Jack's two revenue generating operations (Abstracting Services and Closing Services)are supported by two service departments: Clerical and Custodial.Costs in the service departments are allocated in the following order using the designated allocation bases.Clerical: number of transactions processed.Custodial: square footage of space occupied.Average and expected activity levels for next month are as follows: Number of Transactions Square Footage Expected Costs Abstract services 50 1,800 Closing services 25 2,200 Clerical 1,600 \ 40,000 Custodial 5 10,000 Required: Use the reciprocal method to allocate the service department costs to the revenue generating departments.Provide the total costs for the revenue departments.

Steven Parker owns and operates Steven's Septic Service and Legal Advice.Steven's two revenue generating (production)operations are supported by two service departments: Clerical and Janitorial.Costs in the service departments are allocated in the following order using the designated allocation bases: Clerical: Variable cost: expected number of work orders processed Fixed cost: long-run average number of work orders processed Janitorial: Variable cost: labor hours Fixed cost: square footage of space occupied Average and expected activity levels for next month (June)are as follows: Expected costs in the service departments for June are as follows: Clerical Janitorial Variable costs \ 12,000 \ 4,200 Fixed costs \ 8,400 \ 800 Under the direct method of allocation,what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar. )