Exam 11: Service Department and Joint Cost Allocation

Voorhees Manufacturing Corporation produces three products in a joint process.Additional information is as follows: Total Units produced 42,000 50,000 8,000 100,000 Sales value at split off \ 250,000 \ 50,000 \ 20,000 \ 320,000 Additional costs if processed further \ 18,000 \ 30,000 \ 10,000 \ 58,000 Sales value if processed further Joint costs \ 290,000 \ 70,000 \ 25,000 \ 385,000 Product weights in pounds 84,000 150,000 8,000 242,000 Required: (a)Determine which products should be sold at split-off and which should be processed further.(b)Assuming Voorhees makes decisions that are in its best interests for overall profitability,what would be the company's gross margin?

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

Which of the following statements regarding accounting for by-products is true?

Allocated joint costs are useful for:

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 step-method of cost allocation,the amount of S2 costs allocated to S1 would be:

The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes.There are two manufacturing departments,finishing and assembly,and four service departments labeled S1,S2,S3,and S4.Information relevant to Maryville is as follows: Dept Area used Allocation Finishing Assembly S1 17,000 - .10 .20 - .20 .50 S2 4,250 - - .30 .30 - .40 S3 8,500 .20 .20 - .30 .20 .10 S4 4,250 .30 .10 .30 - .20 .10 Fin. 21,250 - - - - - - Asm. 29,750 - - - - - - Rent paid for the area used is $720,000.How much rent is allocable to the assembly department using the direct method of allocation?

Geneva Powder Company produces body powders in batches.Each type of powder can be sold in its current condition or processed further and specialized for high priced department stores.Data concerning the various products appear below.Joint processing costs are $200,000. Price Type of Ponder Number per Further Price after Pound Processing Processing Pounds Offit Costs Further Cosmetic Powder 200,000 \ 10 \ 150,000 \ 11.50 Medicated Powder 400,000 \ 8 \ 60,000 \ 8.40 Baby Powder 50,000 \ 5 \ 80,000 \ 5.50 Required: (a)Determine which products should be sold at split-off and which should be processed further.(b)Geneva Powder is approached by the Regis Department Store chain.Regis would like Geneva Powder to process regular powder into a special powder for its cosmetics department.At what price per pound would Geneva Powder be economically indifferent between selling the powder at the split-off point and processing it further for Regis?

There are several methods for allocating service department costs to production departments.The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted)

Data Master is a computer software consulting company.Its three major functional areas are computer programming,information systems consulting,and software training.Cynthia Moore,a pricing analyst in the Accounting Department,has been asked to develop total costs for the functional areas.These costs will be used as a guide in pricing a new contract.In computing these costs,Moore is considering three different methods of allocating overhead costs-the direct method,the step method,and the reciprocal method.Moore assembled the following data on overhead from its two service departments,the Information Systems Department and the Facilities Department.Information systems is allocated on the basis of hours of computer usage;facilities are allocated on the basis of floor space.Required: Allocate the service department costs to the user departments using the step method.Allocate Information Systems first and round to the nearest dollar.Provide total user department 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 P1 (subassemblies)is

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 If joint costs are allocated based on relative weight of the outputs and all products are main products,how much of the joint costs would be allocated to product P?

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 net advantage (disadvantage)of processing Sweet Meats further is:

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: If Chocolate Delight is processed further,the gross profit margin that will appear in a product line income statement for Chocolate Delight would be:

Products with a relatively minor sales value are called:

A management purpose for allocating joint costs of a processing center to the various products produced is to:

Morgan and Regis Consultants is a large,international consulting organization.The company provides consulting services in the computer and Internet areas.The company also has several divisions that provide manufacturing of various computer parts.The company has five divisions which are all profit centers.Each division includes allocated corporate costs in its annual budget.The budget for the coming year for the Building and Grounds Service department is $6,000,000.Included in this budget is the maintenance of all corporate buildings,depreciation,cleaning,insurance,and all other facility-related maintenance costs.The company uses a weighted method of allocating facility costs based on the type of space maintained by each division.Space ranges from manufacturing warehouses,which are least expensive to maintain,to computer mainframe space,which requires specialized temperature controls,air conditioning,and maintenance.The company has decided to use a weighting system assigning the following relative weights to each type of space: 1 for warehouse,3 for office,and 5 for computer space.Below,find data relating to the five divisions and the square footage of each type of space.Currently,Division 5,the Internet consulting division,is the largest in sales volume and profits for the company,which has been growing at the rate of 20% per year,while divisions 3 and 4 have been struggling due to declining margins on technology products. Type of space Office Computer Warehouse Total Weighting 3 5 1 Dwision 1 10000 0 0 10000 Dwision 2 31000 10000 5000 46000 Dwision 3 15000 12000 32000 59000 Dwision 4 15000 10000 50000 75000 Division 5 30000 30000 0 60000 Total 101000 62000 87000 250000 Required: (a)As director of corporate budgeting,you are required to send to each division its facility allocation for the coming year.Prepare a schedule showing how the budget of $6,000,000 will be allocated to each division.(b)Describe potential motivational problems brought on by these allocations.(Based on an actual company)

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 reciprocal method what is the algebraic solution to the cost allocation problem?

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 Fodage Expected Costs Abstract services 50 1,800 Closing services 25 2,200 Clerical 1,600 \ 40,000 Custodial 5 10,000 Required: a.Use the step method to allocate the service department costs to the revenue generating departments.Assume Clerical costs are allocated before Custodial costs and round all calculations to the nearest whole dollar.Provide the total costs for the revenue departments.b.Use the step method to allocate the service department costs to the revenue generating departments but now assume Custodial costs are allocated before Clerical costs.Provide the total costs for the revenue departments.

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 Assume Q is a by-product and Mallak uses the cost reduction method of accounting for by-product cost.If estimated net realizable value is used,how much of the joint costs would be allocated to product R?

Cambridge Company manufactures three main products,L,M,and N,from a joint process.Additional information for June production activity follows: L MA N Total Units produced 50,000 40,000 10,000 100,000 Joint costs ? ? ? \ 450,000 Sales value at split-off \ 420,000 \ 270,000 \ 60,000 \ 750,000 Additional costs if process further \ 88,000 \ 30,000 \ 12,000 \ 130,000 Sale value if processed further \ 538,000 \ 320,000 \ 78,000 \ 936,000 Assuming that the 10,000 units of N were processed further and sold for $78,000,what was Anchorage's gross profit from this sale? Assume the physical quantities method of allocation is used.