Exam 11: Service Department and Joint Cost Allocation

Since by-products have minor sales value,alternative methods of accounting for them will not have a material effect on the financial statements.

Veneer Company has two service departments and two producing departments.The number of employees in each department is: Personnel 10 Cateteria 25 Producing Department A 265 Producing Department B 560 The department 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 Department B under the direct method would be:

Which of the following would be an appropriate cost-allocation base for allocating the cost of the company cafeteria?

Explain the difference between the net realizable value method for joint cost allocation and the netback (or workback)method.

If a company's two joint products can be sold at the split-off point,there is no reason for allocating the joint costs to the products.Just because they can be sold,doesn't mean that they are all sold.

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?

Atkinson,Inc. ,manufactures products A,B,and C from a common process.Joint costs were $60,000.Additional information is as follows: Assuming that joint product costs are allocated using the net realizable value method,what were the total costs assigned to Product B?

The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales

Great Falls Company makes two products,Wool Gloves and Wool Mittens.They are initially processed from the same raw material and then,after split-off,further processed separately.Additional information is as follows: Groves MAttens Total Final Sales Price \ 9,000 \ 6,000 \ 15,000 Joint Costs Prior to Split-Off ? ? 6,600 Point Costs Beyond Split-Off Point \ 3,000 \ 3,000 6,000 What are the joint costs allocated to Gloves and Mittens assuming Great Falls uses the estimated net realizable value approach? Gloves Mittens A. \ 3,300 \ 3,300 B \ 3,960 \ 2,640 C. \ 4,400 \ 2,200 D. \ 4,560 \ 2,040

The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.

The following set up is a system of simultaneous linear equations to allocate costs using the reciprocal method.Matrix algebra is not required.The following costs were incurred in three operating departments and three service departments in Westmoreland Company. Department Drect Costs Label Subassemblies \ 550,000 1 Final assembly 776,000 2 Marketing 285,000 3 Building occupancy 85,000 S1 Research\&development 120,000 2 Supervision 45,000 Use of services by other departments is as follows. The equation for department S2 (research and development)is:

Product C is one of several joint products that come out of Department M.The joint costs incurred in Department M total $40,000.Product C can be sold at split-off or processed further and sold as a higher quality item.The decision to process further should be based on the:

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 reciprocal method.

If by-product revenue is treated as other revenue instead of deducted from the net-realizable-value of the main products:

One advantage of the step method is that all reciprocal services are recognized between service departments.

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 cost of the Accounting Department's cost allocated to Department A using the step method and assuming the Maintenance Department's costs are allocated first?

Why does the sequence in which service departments are allocated make a difference when using the step method but not when using the reciprocal method?

Franklin Corporation has three operating departments (Fabricating,Assembly,and Finishing)and two service departments (Custodial and Administrative).The following information has been provided: Required: Franklin has been approached by Sparkle Cleaning to outsource the custodial service.Assuming all costs are variable,what is the relevant cost of the custodial department to compare with the Sparkle Cleaning bid?

One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs.

Penny's Pineapples is a pineapple grower.After cultivating,fertilizing,growing,and picking pineapples,the company sells whole pineapples to food processors.The company is considering adding a processing line where sliced pineapples and pineapple juice,along with a "mash" used for animal feed will be the final products.Projected information about the costs follows: Joint product costs of cultivating,fertilizing and picking pineapples total $1,000,000.Required: (a)Determine the amount of separable costs allocated to each product using the net realizable value method.(b)Determine the final cost per unit for each product.(c)Determine the gross margin for each product.(d)A fertilizer manufacturer approaches Penny Martin,the President of the company,and asks to buy the rinds and other excess materials currently used to produce Mash.He would be willing to pay $0.30 per pound for these materials.What advice would you give Penny?