Exam 17: Allocation of Support Activity Costs and Joint Costs

Which of the following would be considered a service department for an airline?

The Dopler Manufacturing Company has two production departments (Assembly and Finishing) and two service departments (Human Resources and Janitorial). The projected usage of the two service departments is as follows: Use of Human Resources Use of Janitorial Human Resources \@cdots 5\% Janitorial 10\% - Assembly 60\% 40\% Finishing 30\% 55\% The budgeted costs in the service departments are: Human Resources, $90,000 and Janitorial, $50,000. Using the direct method, the amount of Janitorial Department cost allocated to the Finishing Department is:

A company that uses activity-based costing would likely allocate costs from:

Gandolf Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. Short-run usage (hours) 40,000 60,000 100,000 Long-run usage (hours) 45,000 55,000 100,000 If Gandolf uses dual-cost accounting procedures and variable administrative costs total $200,000, the amount of variable administrative cost to allocate to Department 1 would be:

The point in a joint production process where each individual product becomes separately identifiable is commonly called the:

Christiansen Corporation manufactures joint products W and X. During a recent period, joint costs amounted to $300,000 in the production of 20,000 gallons of W and 60,000 gallons of X. Both products will be processed beyond the split-off point, giving rise to the following data: Separable processing costs \ 40,000 \ 160,000 Sales price (per gallon) if processed beyond split-off \ 14 \ 12 The joint cost allocated to W under the net-realizable-value method would be:

The joint-cost allocation method that recognizes the revenues at split-off but does not consider any further processing costs is the:

A company that uses activity-based costing would likely allocate costs from activity-cost pools to products and services.

Consider the following independent cases that relate to service department cost allocations: Case A: Strickland Company has two service departments [Human Resources (H/R) and Information Systems] and two production departments (Machining and Assembly). Human Resource cost is allocated by using the direct method based on the number of personnel in each department. For the period just ended, there were 189 employees in Machining, and Machining received $90,000 of H/R's overhead of $200,000. How many employees are in the Assembly Department? Case B: Walter Burke, controller of Alexander Enterprises, wants service department managers to be aware that their use of other service departments costs the firm a substantial amount of money. Would Burke prefer the direct method or the step-down method of cost allocation? Why? Case C: Lockwood Company has four service departments (S1, S2, S3, and S4) and two production departments (P1 and P2). The costs of S1 are allocated first, followed in order by the costs of S2, S3, and S4. Lockwood uses the step-down method, and the costs of S2 are allocated based on the number of computer hours used. Computer hours logged during the period were as follows: S1, 4,600; S2, 7,100; S3, 10,400; S4, 17,600; P1, 37,000; and P2, 48,600. Over how many hours would S2's cost be allocated? Case D: A recently hired staff accountant noted that given the nature of the allocations, the total cost allocated to production departments is typically less under the step-down method than under the direct method. Do you agree with the accountant? Why? Required: Answer the questions that are raised in Cases A, B, C, and D.

Many companies use the dual-rate method of cost allocation. Required: A. How does the dual-rate method work? B. Is there any advantage of the dual-rate method over a method that uses a combined, lump-sum single rate? Briefly explain.

Seymore Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Cafeteria 20 Human Resources 30 Machining 100 Assembly 150 Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Machining?

Which of the following methods recognizes the fact that fixed and variable service department costs should be allocated separately?

Barry Chemical Company manufactures X-111, X-112, and X-113 from a joint process. The following information is available for the period just ended: Units produced 6,000 14,000 30,000 50,000 Joint cost allocation ? \ 18,400 ? \ 80,000 Sales value at split-off \ 104,000 ? ? \ 260,000 Required: A. Does Barry allocate joint costs by using the physical-units method? Explain. B. Assume that Barry does not use the physical-units method but instead allocates joint costs by using the relative-sales-value method. Find the four unknowns in the preceding table.

Holbrook Corporation is developing departmental overhead rates based on direct labor hours for its two production departments, Molding and Assembly. The Molding Department worked 20,000 hours during the period just ended, and the Assembly Department worked 40,000 hours. The overhead costs incurred by Molding and Assembly were $151,250 and $440,750, respectively. Two service departments, Repair and Power, directly support the two production departments. These service departments have costs of $90,000 and $250,000, respectively. The following schedule reflects the use of Repair and Power's output by the various departments: Repair (repair hours) Power (kilowatt hours) 120,000 500 500 420,000 4,000 60,000 Required: A. Allocate the company's service department costs to production departments by using the direct method. B. Calculate the overhead application rates of the production departments. Hint: Consider both directly traceable and allocated overhead when deriving your answer. C. Allocate the company's service department costs to production departments by using the step-down method. Begin with the Power Department, and round calculations to the nearest dollar.

Visions, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows. Human Resources 3,500 Building Maintenance 8,700 Machining 9,900 Assembly 15,000 Over how many square feet would the Building Maintenance cost be allocated (i.e., spread) with the direct method and the step-down method? Direct Step-Down A. 24,900 28,400 B. 24,900 37,100 C. 28,400 24,900 D. 37,100 24,900 E. Some other combination of figures not listed above.

The Dollar Store has a Human Resources Department and a Janitorial Department that provide service to three sales departments. The Human Resources Department cost is allocated on the basis of employees, and the Janitorial Department cost is allocated on the basis of space. The following information is available: Budgeted cost Space in square feet Number of employees Human \ 45,000 4,000 5 \ 30,000 1,000 10 20,000 15 30,000 45 50,000 30 Using the direct method, the amount of Janitorial Department cost allocated to Sales Department no. 2 is:

Christiansen Corporation manufactures joint products W and X. During a recent period, joint costs amounted to $300,000 in the production of 20,000 gallons of W and 60,000 gallons of X. Both products will be processed beyond the split-off point, giving rise to the following data: Separable processing costs \ 40,000 \ 160,000 Sales price (per gallon) if processed beyond split-off \ 14 \ 12 The joint cost allocated to X under the net-realizable-value method would be:

Trackings Corporation has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing). Maintenance is the larger service department and Assembly is the largest production department. The two service departments service each other as well as the three producing departments. On the basis of this information, which of the following cost allocations would not occur under the direct method?

Suppose that one hog yields 250 pounds of ham, 200 pounds of chops, and 50 pounds of miscellaneous items. The sales value of ham is $1.80 per pound; chops, $2.50 per pound; and miscellaneous items, $1.00 per pound. The hog costs $670, and processing costs are $30. Required: A. Determine the proper allocation of joint costs to the three products by using the physical-units method. B. Repeat part "B" by using the relative-sales-value method.

Which of the following choices correctly denotes the data needed to allocate joint costs under the relative-sales-value method? Sales Value of Product at Split-Off Separable Cost Sales Value of Product After Processing Beyond Split-Off A. Yes Yes No B. Yes Yes Yes C. Yes No No D. No Yes Yes E. No No Yes