Exam 11: Service Department and Joint Cost Allocation

Prestige Financial Credit Company produces two styles of credit reports: Individual and Corporate.The difference between the two is the amount of background information and data collection required.The Corporate report uses more skilled personnel because additional checking and data are required.The relevant figures for the year just completed follow.Total support service costs to be allocated are $3,200,000. Allocation base Indlvidual Corporate Data purchased \ 40,000 \ 80,000 Research hours 24,000 30,000 Interview hours 1,000 10,000 Number of reports 16,000 3,000 Required: For each of the four potential allocation bases,determine the amount of support-service cost allocated to each type of report.Round all percentages to two decimal places.

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 direct method.(Round to the nearest dollar and provide total user department costs)

The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.

Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?

In deciding whether to outsource a service department or not,the cost of the service department should be estimated using the step method of allocation.

Ridgeline Enterprises produces three products in a joint process.Products A and B were processed further.Additional information is as follows: Required: (a)Allocate the joint costs,assuming that all products are joint products and joint-costs are allocated using the physical-measures method.(b)Allocate the joint costs using the physical-measures method,assuming that product C is considered a by-product,whose sales value is deducted from the total joint costs.

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 would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?

Which of the following is the least practical reason for allocating service department costs to user departments?

Upton Company produces two main products and a by-product out of a joint process.The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month.Upton has employed the physical-volume method to allocate joint production costs to the two main products.The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products.Data regarding Upton's operations for the current month are presented in the chart below.During the month,Upton incurred joint production costs of $2,520,000.The main products are not marketable at the split-off point and,thus,have to be processed further.The amount of joint production cost that Upton would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs 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 S3 (supervision)is:

Which of the following service departments could logically use space occupied (square footage)to allocate its costs to user departments?

Which of the following is a weakness of the step method of service cost allocations?

Which of the following is not a step needed to maximize the profits from joint products?

In joint product costing and analysis,which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted)

Tenet Engineering,Inc.operates two user divisions as separate cost objects.To determine the costs of each division,the company allocates common costs to the divisions.During the past month,the following common costs were incurred: Computer servic es ( 85\% fixed) \ 260,000 Building occupancy 600,000 Personnel costs Total common costs \ 970,000 The following information is available concerning various activity measures and service usages by each of the divisions: Dirision A Division B Area occupied (square teet) 20,000 40,000 Payroll \ 380,000 \ 180,000 Computer time (hours) 200 220 Computer storage (megabytes) 4,050 -0- Equipment value \ 200,000 \ 250,000 Operating profit (pre-allocations) \ 565,000 \ 495,000 Using the most appropriate allocation basis,what is the personnel cost allocated to Division A?

Tanner Corporation produced 3,660 units,consisting of three separate products,in a joint process for the year.The market for these products was so unstable that it was not practical to estimate the selling price of the products.A cost of $425,000 was incurred in the joint process.Product X's production was 80% of product Y's while product Z's production was 125% of product Y's.What is the amount of the joint cost allocable to product X assuming Tanner uses the physical quantities method of 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 Maintenance Department's cost allocated to Department B using the step method and assuming the Maintenance Department's costs are allocated first?

In a sell-or-process-further decision,the additional costs incurred after the split-off point are irrelevant

The Foxmoor Company produces three products,X,Y,and Z from a single raw material input.Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000.Product Y:

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 Maintenance Department's cost allocated to Department A using the direct method?