Deck 7: Allocating Costs of Support Departments and Joint Products

Question

Joint production processes result in the output of two or more products produced simultaneously.

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The use of a multiple charging rate is needed, one for variable costs, and one for fixed costs.

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The sequential method allocates costs in ranking order of support departments.

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The direct method is the most difficult way to allocate costs to the support departments.

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Support department fixed costs are allocated on the basis of original capacity.

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Allocation increases total costs.

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The choice of allocation method depends on an evaluation of costs and benefits, and circumstances.

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The overhead rate may be computed once allocation from support service cost to producing department has been performed.

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A single charging rate uses the fixed costs of the support department.

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Common costs are mutually beneficial costs, used in the output of two or more services or products.

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Dual rates combine the fixed and variable costs.

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Causal factors are variables or activities within a producing department that stimulate the incurrence of support costs.

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Producing departments provide essential services for support departments.

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Departmental overhead rate is computed by dividing the budgeted base by the total overhead in a producing department.

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The reciprocal method of allocation recognizes only some of the support departments' interactions.

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The three methods of allocating support center costs to producing departments are the direct, sequential, and reciprocal methods.

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Departmental overhead is applied to products passing through the department.

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Allocation is not necessary when using JIT manufacturing.

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Producing departments create products and services to make and sell.

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Budgeted rates are allocated based on original capacity.

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Costs that are easily traced to individual products are called separable costs.

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Departmental __________ is applied to products passing through the department.

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The __________ method of allocating costs, allocates costs from support to producing departments.

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The split-off point is the ending point of a joint product process.

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Support department cost to the producing departments is(are) called:

A)direct materials
B)direct labor
C)activity driver
D)common cost

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The weight factor addresses the advantages of the physical units method.

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Under the physical units method, joint costs are distributed to products on the basis of some physical measure.

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Joint products are two or more products produced simultaneously by the same process.

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A common cost occurs

A)when only one product or service is benefited.
B)when different resources are used to produce one output.
C)when the same resource is used in the output of two or more outputs.
D)when a resource is used by two or more companies.

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The __________ charging rate combines variable and fixed costs of support departments.

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The __________ method of allocating costs assumes "step down" interdepartmental services.

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A secondary product recovered during the manufacturing of a primary product during a joint process is called a(n): __________ .

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Support department __________ costs are allocated on the basis of original capacity.

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Examples of support departments include all of the following EXCEPT

A)maintenance.
B)personnel.
C)machining.
D)data processing.

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After allocation, total overhead in producing department is divided by the budgeted measure of activity to get the __________ overhead rate.

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__________ are mutually beneficial costs to joint product costing.

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Support departments

A)are responsible for manufacturing the products sold to customers.
B)work directly on the products of the firm.
C)provide services directly to customers.
D)provide essential services to the producing departments.

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Products produced simultaneously by the same process up to a point are called __________ products.

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The support department costs allocated to producing departments is assigned to individual products through the use of:

A)plantwide overhead rates.
B)departmental overhead rates.
C)direct labor rate per hour.
D)direct material cost per unit.

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Activities or variables within a producing department that provoke the incurrence of support costs are called __________ .

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If a support department's costs were budgeted to be $150,000 and actual costs incurred by the support department were $200,000, the total amount of the support department's costs that should be allocated to other departments is

A)$350,000.
B)$200,000.
C)$150,000.
D)$50,000.

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Which of the following cost categories would most likely use the number of employees or new hires as its activity driver?

A)maintenance
B)purchasing
C)personnel
D)accounting

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The major objective(s) of allocations are

A)to motivate managers.
B)to compute product line profitability.
C)to value inventory.
D)all of the above.

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Which of the following is NOT a major objective of allocation as identified by the IMA?

A)to detect fraud
B)to obtain a mutually agreeable price
C)to compute product-line profitability
D)to value inventory

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Which of the following is an example of a producing department in a manufacturing firm?

A)Materials storeroom
B)Maintenance
C)Cafeteria
D)Assembly

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Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2018 for its three departments: $\begin{array}{lrrr}&\text { Sportswear } &\text { Lingerie} &\text { Appliance: }\\\text { Sales } & \$ 160,000 & \$ 120,000 & \$ 120,000 \\\text { Direct adverti sing costs } & \$ 7,000 & \$ 12,000 & \$ 3,000 \\\text { Newspaper ad space } & 62 \% & 20 \% & 18 \%\end{array}$
How much of the indirect advertising costs will be allocated to the Sportswear Department if newspaper ad space is the activity driver?

A)$6,000
B)$4,340
C)$3,720
D)$2,280

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Support department costs are accounted for in which one of the following ways?

A)They are allocated directly to units of product.
B)They are allocated to producing departments and then allocated to units of product.
C)They are allocated to units of product and then allocated to the producing departments.
D)They are expensed as incurred.

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A possible causal factor to use when allocating cafeteria costs would be

A)number of square feet.
B)number of direct labor hours.
C)number of employees.
D)appraised value of square footage.

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Which of the following cost categories would most likely use machine hours as its activity driver?

A)personnel
B)maintenance
C)purchasing
D)both a and b

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The Ruling Company assigns plant administration costs to the production departments based on the number of employees. Which of the following would NOT be a good combination of common costs with an activity driver?

A)personnel department costs based on number of employees
B)purchasing department costs based on machine hours
C)cafeteria costs based on meals served
D)warehouse costs based on the value of materials stored

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The activities or variables within a producing department that provoke the incurrence of support costs are called:

A)Causal factors
B)Common costs
C)Cost objectives
D)Activity output

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Rules of financial reporting (GAAP) require

A)that direct manufacturing costs and a fair share of indirect manufacturing costs be assigned to products.
B)that only producing department costs be assigned to products.
C)that only direct manufacturing costs be assigned to products.
D)that only indirect manufacturing costs be assigned to products.

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Which of the following guidelines must be considered while determining the basis to be used to allocate support department costs?

A)Guideline of revenue generation
B)Guideline of goal congruence
C)Guideline of profit maximization
D)Guideline of cause and effect

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Which of the major objectives of allocation as identified by the IMA would NOT be relevant in a service organization?

A)to obtain a mutually agreeable price
B)to compute product-line profitability
C)to predict the economic effects of planning and control
D)all of the above are objectives of allocation

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Which of the following would be the most appropriate base for allocating the costs of the housekeeping department?

A)machine hours
B)direct labor hours
C)square feet
D)number of employees

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Which of the following is NOT a benefit of the costs of support departments being allocated to production departments?

A)The allocation assists producing departments' use of support departments at a more efficient level.
B)Allocation of support department costs encourages managers of production departments to monitor performance of the support department.
C)The allocation helps each department select the correct level of support service consumption.
D)Management will use the information to support out-sourcing all support services.

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What is the most likely action to be taken by a company when a support department is NOT as cost effective as an outside source?

A)The company may force managers to use the internal support department.
B)The company may force managers to use an external source for the service.
C)The company may elect not to supply the service internally.
D)all of the above

Question

Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data has been collected for 2018 for its three departments: $\begin{array}{lrrr}&\text { Sportswear } &\text { Lingerie} &\text { Appliance: }\\\text { Sales } & \$ 160,000 & \$ 120,000 & \$ 120,000 \\\text { Direct adverti sing costs } & \$ 7,000 & \$ 12,000 & \$ 3,000 \\\text { Newspaper ad space } & 62 \% & 20 \% & 18 \%\end{array}$ How much of the indirect advertising costs will be allocated to the Lingerie Department if direct advertising costs is the activity driver? (Round to the nearest dollar if necessary)

A)$3,000
B)$3,273
C)$6,000
D)$12,000

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What is one of the potential disadvantages of NOT allocating support department costs to production departments?

A)total costs would not be accumulated
B)managers may tend to overconsume these services
C)this would encourage managers to monitor support department performance
D)managers will use a support service at a more efficient level

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Which of the following would be the most appropriate base for allocating the costs of the maintenance department?

A)machine hours
B)direct labor hours
C)number of employees
D)square feet

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Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190 and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals are estimated to use 130,000; Corporate will use 165,000 and 35,000 from the trust area. Assuming a single charging rate is used, if the total pages printed were 340,000, which of the following statements is correct?

A)The printing costs allocated to all departments would be $85,000.
B)The printing department would expect to incur costs of $82,790.
C)Any extra amount charged is due to the fixed costs being charged as if they were variable costs.
D)all of the above.

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Which of the following cost allocation methods allocates support department costs only to the producing departments?

A)The direct allocation method
B)The reciprocal allocation method
C)The proportional allocation method
D)The step allocation method

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If the allocation is for performance evaluation, the allocation of variable support department costs would be calculated as

A)Actual rate × Actual usage.
B)Actual rate × Budgeted usage.
C)Budgeted rate × Actual usage.
D)Budgeted rate × Budgeted usage.

Question

Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy center on the basis of total copies made. During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows: $\begin{array}{lll}&\text { Copy Center } 1 &\text { Copy Center 2 }\\\text { Normal activity (copies) } & 600,000 & 400,000 \\\text { Actual activity (copies) } & 500,000 & 440,000\end{array}$
Support department costs NOT allocated to the two copy centers are:

A)$22,000.
B)$9,840.
C)$8,400.
D)$6,000.

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Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190 and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals are estimated to use 130,000; Corporate will use 165,000 and 35,000 from the trust area. Assuming a single charging rate is used, if the Corporate Department used 190,000 pages, what would be the printing charges for the Corporate Department? (Round to the nearest cent.)

A)$47,500
B)$39,900
C)$7,600
D)$42,195

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If a support department's costs were budgeted to be $75,000 and actual costs incurred by the support department were $70,000, the total amount of the support department's costs that should be allocated to other departments is

A)$145,000.
B)$75,000.
C)$70,000.
D)$5,000.

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Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows: $\begin{array}{lcc}& \text { Brochure Center 1 } & \text { Brochure Center 2 } \\\text { Normal activity (brochures) } & 1,200,000 & 800,000 \\\text { Actual activity (brochures) }& 1,000,000 & 880,000\end{array}$
Support department costs NOT allocated to the two brochure centers are:

A)$16,800.
B)$19,680.
C)$44,000.
D)$8,000.

Question

Which of the following statements is true of the allocation of fixed support department costs?

A)It should be allocated only to other support departments of a firm.
B)It should be allocated only to the user departments making maximum use of support departments.
C)It should be allocated based on the practical capacity of user departments.
D)It should be allocated based on the direct labor hours used by support departments.

Question

Long Distance Company's travel department had the following budgeted costs for the coming year: Variable costs $\quad \$ 34$ per trip
Fixed costs $\quad \$ 143,360$
$\begin{array} { l r c } & \text { Yearly Trips } & \text { Monthly Peak Trips } \\ \text { West Sales Territory } & 110 \text { trips } & 5 \\ \text { Midwest Sales Territory } & 170 \text { trips } & 12 \\ \text { Southern Sales Territory } & 150 \text { trips } & 15 \\ \text { Eastern Sales Territory } & 130 \text { trips } & 8 \\ \text { The actual usage is given below: } & \\ & \\ \text { West Sales Territory } & 100 \text { trips } \\ \text { Midwest Sales Territory } & 150 \text { trips } \\ \text { Southern Sales Territory } & 160 \text { trips } \\ \text { Eastern Sales Territory } & 140 \text { trips } \end{array}$ Using a single charging rate, determine the rate per trip.

A)$256
B)$290
C)$295
D)$261
E)$34

Question

Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows: $\begin{array}{lll}&\text { Brochure Center } 1 &\text { Brochure Center } 2\\\text { Normal activity (brochures) } & 1,200,000 & 800,000 \\\text { Actual activity (brochures) } & 1,000,000 & 880,000\end{array}$
For purposes of performance evaluation, fixed costs allocated to Brochure Center 1 are:

A)$60,000.
B)$72,000.
C)$65,600.
D)$75,200.

Question

A)$29,000
B)$31,900
C)$29,500
D)$28,160
E)none of the above

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Aquamarine company incurred $20,000 of common fixed costs and $80,000 of common variable costs. These costs are to be allocated to its two departments: Department A and Department B. Data on capacity provided and capacity used by the two departments follows: $\begin{array}{lcc}&\text { Capacity Provided } & \text {Capacity Used }\\\text { Department } & \text { in Hours } & \text { in Hours } \\\text { A } & 600 & 550 \\B & 400 & 450\end{array}$ Common fixed costs are allocated to Departments A and B on the basis of capacity provided, and common variable costs are allocated to Departments A and B on the basis of capacity used. The fixed and variable costs allocated to Department A are:

A)$32,000 and $30,500, respectively.
B)$20,000 and $37,000, respectively.
C)$12,000 and $44,000, respectively.
D)$10,000 and $50,500, respectively.

Question

Long Distance Company's travel department had the following budgeted costs for the coming year: Variable costs $\quad \$ 34$ per trip
Fixed costs $\quad \$ 143,360$
$\begin{array} { l r c } & \text { Yearly Trips } & \text { Monthly Peak Trips } \\ \text { West Sales Territory } & 110 \text { trips } & 5 \\ \text { Midwest Sales Territory } & 170 \text { trips } & 12 \\ \text { Southern Sales Territory } & 150 \text { trips } & 15 \\ \text { Eastern Sales Territory } & 130 \text { trips } & 8 \\ \text { The actual usage is given below: } & \\ & \\ \text { West Sales Territory } & 100 \text { trips } \\ \text { Midwest Sales Territory } & 150 \text { trips } \\ \text { Southern Sales Territory } & 160 \text { trips } \\ \text { Eastern Sales Territory } & 140 \text { trips } \end{array}$ Using both a fixed and variable rate, what are the respective rates for fixed and variable per trip for the West Sales Territory? Fixed costs are allocated on the basis of monthly peak trips.

A)12.5%; $34
B)19.6%; $34
C)18.2%; $34
D)19%; $34
E)none of the above

Question

The following information pertains to Famous Company: $\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } && { \text { Producing Departments } } \\\hline & \text { Personnel } & \text { Maintenance } & \text { Fabrication } & \text { Assembly } \\\hline \text { Budgeted overhead } & \$ 40,000 & \$ 72,000 & \$ 140,000 & \$ 160,000 \\\hline \text { Direct 1abor hours } & 2,000 & 2,500 & 8,000 & 10,000 \\\hline \text { Machine hours } & - & - & 12,000 & 8,000 \\\hline \text { Number of employees } & 4 & 5 & 15 & 25 \\\hline\end{array}$ Famous Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours.
Predetermined overhead rates for fabrication and assembly are based on direct labor hours.
What is the amount of maintenance costs allocated to the Assembly Department using the direct method? (Round amounts to dollars.)

A)$14,400.
B)$48,000.
C)$28,800.
D)$38,160.

Question

Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows: $\begin{array}{lcc}& \text { Brochure Center 1 } & \text { Brochure Center 2 } \\\text { Normal activity (brochures) } & 1,200,000 & 800,000 \\\text { Actual activity (brochures) }& 1,000,000 & 880,000\end{array}$
For purposes of performance evaluation, fixed costs allocated to Brochure Center 2 are:

A)$57,600.
B)$120,000.
C)$48,000.
D)$102,400.

Question

Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190 and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals are estimated to use 130,000; Corporate will use 165,000 and 35,000 from the trust area. Assuming a single charging rate is used, what would be the charge per page? (round to the nearest cent)

A)$.04
B)$.25
C)$.21
D)none of the above amounts

Question

If the allocation is for product costing, the allocation of variable support department costs would be calculated as

A)Actual rate × Actual usage.
B)Actual rate × Budgeted usage.
C)Budgeted rate × Actual usage.
D)Budgeted rate × Budgeted usage.

Question

Long Distance Company's travel department had the following budgeted costs for the coming year: Variable costs $\quad \$ 34$ per trip
Fixed costs $\quad \$ 143,360$
$\begin{array} { l r c } & \text { Yearly Trips } & \text { Monthly Peak Trips } \\ \text { West Sales Territory } & 110 \text { trips } & 5 \\ \text { Midwest Sales Territory } & 170 \text { trips } & 12 \\ \text { Southern Sales Territory } & 150 \text { trips } & 15 \\ \text { Eastern Sales Territory } & 130 \text { trips } & 8 \\ \text { The actual usage is given below: } & \\ & \\ \text { West Sales Territory } & 100 \text { trips } \\ \text { Midwest Sales Territory } & 150 \text { trips } \\ \text { Southern Sales Territory } & 160 \text { trips } \\ \text { Eastern Sales Territory } & 140 \text { trips } \end{array}$ Using both a fixed and variable rate with fixed costs allocated on the basis of monthly peak trips, what will the West Sales Territory be charged for the year? (round to the nearest dollar)

A)$31,498
B)$21,320
C)$29,492
D)$30,638
E)none of the above

Question

Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy center on the basis of total copies made. During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows: $\begin{array}{lll}&\text { Copy Center } 1 &\text { Copy Center 2 }\\\text { Normal activity (copies) } & 600,000 & 400,000 \\\text { Actual activity (copies) } & 500,000 & 440,000\end{array}$
For purposes of performance evaluation, fixed costs allocated to Copy Center 1 are:

A)$36,000.
B)$37,600.
C)$30,000.
D)$32,800.

Question

Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy center on the basis of total copies made. During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows: $\begin{array}{lll}&\text { Copy Center } 1 &\text { Copy Center 2 }\\\text { Normal activity (copies) } & 600,000 & 400,000 \\\text { Actual activity (copies) } & 500,000 & 440,000\end{array}$
For purposes of performance evaluation, fixed costs allocated to Copy Center 2 are:

A)$28,800.
B)$60,000.
C)$51,200.
D)$24,000.

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Deck 7: Allocating Costs of Support Departments and Joint Products

Joint production processes result in the output of two or more products produced simultaneously.

True

The use of a multiple charging rate is needed, one for variable costs, and one for fixed costs.

True

The sequential method allocates costs in ranking order of support departments.

True

The direct method is the most difficult way to allocate costs to the support departments.

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