Exam 11: Service Department and Joint Cost Allocation

Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Sensice Dept Direct Launds Costs Sq Ft 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 direct method.

For purposes of allocating joint costs to joint products,the estimated net realizable value at split-off is equal to:

Advanced Computer Solutions,Inc.has two main services: (1)time on a timeshared computer system,and (2)proprietary computer programs.Computer time is provided by the operation department (Op)and programs are written by the programming department (P).The percentage of each service used by each department for a typical period is: Supplied User Op P Op - 40\% P 30\% - Sold to customers 70\% 60\% In a typical period,the operation department (Op)spends $4,500 and the programming department (P)spends $2,500.Under the step method (Op first),what is the cost of the computer time and the computer programs for sale? Time Programs A. \ 4,500 \ 2,500 B. \ 3,150 \ 3,850 C. \ 1,350 \ 5,650 D. \ 2,700 \ 4,300

Timberland Corporation produces three products from a joint process: One-X,Two-Y,and Three-Z.Each product can be processed further and sold for more.Data on the processes are as follows: Procuct One-x Two-Y Three-Z Total Units produced 16,000 8,000 4,000 28,000 Joint costs \ 60,000 ( a ) (b) \ 120,000 Sales value at split-oft (c) (d) \ 30,000 \ 200,000 Additional Processing Costs \ 14,000 \ 10,000 \ 6,000 \ 30,000 Sales value if Processed Further \ 140,000 \ 60,000 \ 40,000 \ 240,000 The amount of joint costs for One-X is the amount that has been allocated.Required: Determine the values for the lettered spaces.(CPA adapted)

With the reciprocal method,the total service department costs less the direct costs of the service department equals the cost allocated to the service department.

Which of the following statements about maximizing the profit of joint product processes is true?

Describe two methods of accounting for by-products.What effects do these methods have on the allocation of the joint cost to the main products?

The Joplin Company conducts a simple chemical process in Department #1,which produces three separate items: A,K,and H.A is processed further in Department #2.K is processed further in Department #3.Product H is a by-product,to be accounted for by the other revenue method.The following information relates to September: Department #1's costs $420,000.Department #2's costs $150,000.Department #3's costs $60,000.A: 25,000 pounds completed;23,500 pounds sold for $12 per pound.K: 75,000 pounds completed;70,000 pounds sold for $7.50 per pound.H: 10,000 pounds completed;10,000 pounds sold for $1.50 per pound.(There are shipping costs of $0.30 per pound. ) There were no September 1^st inventories.Required: Prepare a schedule to show the computation for the unit costs per pound for Products A,K,and H assuming Joplin uses the physical quantities method to allocate joint costs to the main products.

Net realizable value at the split-off point is used to allocate: Costs After Spltoff Point Incurred Joint Costs A. No No B. No Yes C. Yes No D. Yes Yes

Cordner Corporation has two production Departments: P1 and P2 and two service departments: S1 and S2.Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows: Under the direct-method of cost allocation,the amount of S1 costs allocated to the S2 would be:

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 P3 (marketing)is:

Ardvark Industries has two production departments,Assembly and Finishing and three Service Departments,Personnel,Maintenance,and Cafeteria.Data relevant to Ardvark are: Dept Direct Cost Persomel Maintenance Cafeteria Assembly Finishing Personnel \ 500,000 0.10 0.70 0.20 Maintenance 420,000 0.80 0.20 Cafeteria 200,000 0.20 0.20 0.30 0.30 Finishing 150,000 Assembly 380,000 Required: Allocate the service department costs of Ardvark Industries using the step-method of cost allocation.

Castro Corporation has one service department and three producing departments.The budget for the following year allocates the service department costs to the producing departments based on the number of employees in each department.Currently,the budget for the service department is $2,400,000 and the number of employees in each department is as follows: Department 1: 100 Department 2: 50 Department 3: 150 During the year,due to sudden expanded growth,Department 2 has to add 50 new employees;however the service department costs have not increased due to budget constraints.Required: (a)What were the expected service department allocations at the beginning of the year to each production department? (b)What will be the actual allocations based on the number of employees each department has at year end? (c)Comment on the reasonableness of the situation.What are the potential causes of any problems created by this allocation method?

Joint products are outputs from common inputs and a common production process.

In a sell-or-process-further decision (a)what are the relevant data to be considered and (b)what is the decision process associated with the split-off point?

What are some of the reasons that joint costs are allocated?

Dreamland University has 20 departments.Two of its best departments are the (1)College of Innovation (COI)and (2)Testing Services.The College of Innovation (COI)attempts to teach students the difficult,but useful,skill of innovation.Testing Services grades examinations for professors.How would these two departments be classified? College of Innovation Testing Senrices A. Senvice Service B. User Service C. User User D. Senvice User

Cariboo Manufacturing Company incurred a joint cost of $600,000 in the production of X and Y in a joint process.Presently,1,800 of X and 1,400 of Y are being produced each month.Management plans to decrease X's production by 300 units in order to increase the production of Y by 500 units.Additionally,this change will require minor modifications,which will add $20,000 to the joint cost.This cost is entirely attributable to product Y.What is the amount of the joint costs allocable to X and Y before changes to existing production assuming Cariboo allocates their joint costs according to the proportion of Y and X produced? Product Product Y A. \ 262,500 \ 337,500 B. \ 264,706 \ 335,294 C. \ 273,529 \ 326,471 D. \ 337,500 \ 262,500

The Delicious Canning Company processes tomatoes into ketchup,tomato juice,and canned tomatoes.During the summer,the joint costs of processing the tomatoes were $420,000.There was no beginning or ending inventories for the summer.Production and sales value information for the summer were as follows: Product Cases Addtional Costs Seling Price Ketchup 100,000 \ 3.00 per case \ 28 per case Juice 150,000 5.00 per case \ 25 per case Canned 200,000 2.50 per case 10 per case Required: a.Determine the amount allocated to each product if the estimated net realizable value method is used.b.Determine the amount allocated to each product if the physical units method is used.

For each of the support service costs listed below,name an appropriate cost allocation base: