Question 1

Pattinson Limited has two service departments (Human Resources and Public Relations) and two production departments (Assembly and Finishing). The number of employees in each department follows. $\begin{array} { l l } 
\text { Human Resources } & 20 \
\text { Public Relations } & 30 \
\text { Assembly } & 120 \
\text { Finishing } &200
\end{array}$ Pattinson uses the direct method of cost allocation and allocates cost on the basis of employees. If Public Relations cost amounts to $2,000,000, how much of the department's cost would be allocated to Assembly?

Accepted Answer

A) $750,000. 
B) $1,081,081. 
C) $1,200,000. 
D) $1,250,000. 
E) $2,000,000.

Question 2

Mission Mars Incorporated uses the physical-units method to allocate costs among its three joint products: X, Y, and Z. The following data are available for the period just ended: Joint processing cost: $800,000
Total production: 150,000 pounds
Share of joint cost allocated to X: $160,000
Share of joint cost allocated to Y: $400,000
Which of the following statements is true?

Accepted Answer

A) The Company would have relied on the sales value of each product when allocating joint costs to X, Y, and Z. 
B) The Company produced 30,000 pounds of Z during the period. 
C) The Company produced 45,000 pounds of Z during the period. 
D) The Company produced 105,000 pounds of Z during the period. 
E) The Company produced 150,000 pounds of Z during the period.

Question 3

When the step-down method is used, the service department whose costs are allocated first is often the department that:

Accepted Answer

A) obtains the highest yield. 
B) has the lowest cost. 
C) is the newest. 
D) serves the greatest number of other service departments. 
E) serves the fewest other service departments.

Question 4

Victoria Manufacturing Co. manufactures two products (A and B) from a joint process that cost $200,000 for the year just ended. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Further information follows. 
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { If Processed Further }$
$\begin{array}{|c|c|c|c|c|c|c|c|c|}
\hline&& \text { Product } && \text { Produced }\
\hline \text { Product } && \text { Produced } && \text { Sales Price } && \text { Sales Value } && \text { Separable Cost } \
\hline \text { A } && 20,000 && \$ 12 && \$ 350,000 && \$ 90,000 \
\hline \text { B } && 30,000 && 8 && 300,000 && 60,000 \
\hline
\end{array}$ If the joint costs are allocated based on the physical-units method, the amount of joint cost assigned to product A would be:

Accepted Answer

A) $80,000. 
B) $100,000. 
C) $104,000. 
D) $120,000. 
E) $200,000.

Question 5

Florek Inc. allocates joint costs by using the net-realizable-value method. In the company's Chicago plant, products 1 and 2 emerge from a joint process that costs $310,000. Product 2 is then processed at a cost of $320,000 into products 3 and 4. Data pertaining to 1, 3, and 4 follow.
 $\begin{array} { l l l l } 
& \underline { 1 } & \underline { 3 } & \underline { 4 } \
\text { Costs beyond split-off } & \$ 30,000 & \$ 12,000 & \$ 18,000 \
\text { Selling price } & 30 & 34 & 60 \
\text { Pounds produced } & 10,000 & 2,000 & 3,000
\end{array}$ Required:
A. Allocate the $320,000 processing cost between products 3 and 4. Round to the nearest whole dollar.
B. From a profitability perspective, should product 2 be processed into products 3 and 4? Show your calculations.
C. Assume that the net realizable value associated with 2 is zero. How would you allocate the joint cost of $25310,000?

Accepted Answer

The answer of Florek Inc. allocates joint costs by using...

Question 6

Hilton Hamlet Corp. has an Advertising Department and a Human Resources Department that provide service to three store locations. The Human Resources Department cost is allocated on the basis of employees, and the Advertising Department cost is allocated on the basis of space. The following information is available: $\begin{array} { l r r r r r } 
& \begin{array} { c } 
\text { Human } \
\text { Resources }
\end{array} & \text { Advertising } & \text { Store \#1 } & \text { Store \#2 } & \text { Store \#3 } \
\text { Budgeted Cost } & \$ 30,000 & \$ 15,000 & & & \
\begin{array} { l } 
\text { Space in Square }
\end{array} & 2,000 & 500 & 10,000 & 33,000 & 40,000 \
\text { feet } &  \
\text { Number of } & 10 & 5 & 20 & 50 & 35\
\text { Employees } &  & & & & \
\end{array}$ Using the step-down method and assuming Human Resources cost is allocated first, the amount of Advertising cost allocated to Store #2 is:

Accepted Answer

A) $5,789. 
B) $5,964. 
C) $6,506. 
D) $7,500. 
E) $11,579.

Question 7

Higgins Corporation manufactures two chemicals (Flextra and Hydro) in a joint process. Data from a recent month follow.
Direct materials used: $360,000
Direct labour: $150,000
Manufacturing overhead: $690,000
Manufacturing output:
Flextra: 40,000 gallons
Hydro: 120,000 gallons
Flextra sells for $15 per gallon and Hydro sells for $20 per gallon.
Required:
A. Compute the total joint costs to be allocated to Flextra and Hydro.
B. Compute the joint costs that would be allocated to Flextra by using the physical-units method.
C. Compute the joint costs that would be allocated to Hydro by using the relative-sales-value method.
D. Assume that Hydro can be converted into a more refined product, Hydro-R, in a totally separable process at an additional cost of $4 per gallon. If the refined product can be sold in the marketplace for $26 per gallon, compute the net realizable value of Hydro-R

Accepted Answer

The answer of Higgins Corporation manufactures two chemicals (Flextra and...

Question 8

When allocating joint costs, Grimsby Company calculates the final sales value of the various products manufactured and subtracts appropriate separable costs. The company is using the:

Accepted Answer

A) gross margin at split-off method. 
B) reciprocal-accounting method. 
C) relative-sales-value method. 
D) physical-units method. 
E) net-realizable-value method.

Question 9

Rocky Mountain Company produces two products (X and Y) from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint manufacturing costs for the year were $60,000. Sales values and costs were as follows:  $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$$\text { If Processed Further }$
$\begin{array}{l}
\begin{array}{|c|c|c|c|c|}
\hline&& \text { Units } && \text { Salcs Valuc } \
\hline\text { Product } && \text { Madc } && \text { al Spli-oll } \
\hline \text { X } &&9.000 && \text { S40.000 } \
\hline \text { Y } &&6.000 && 80.000 \
\hline
\end{array}
\begin{array}{c|c|c|c|}
\hline & \text { Sales } && \text { Separable } \
\hline &\text { Value } && \text { Cosis } \
\hline &\$ 78.000 && \$ 10.500 \
\hline & 90.000 && 7.500 \
\hline
\end{array}
\end{array}$ If the joint production costs are allocated based on the physical-units method, the amount of joint cost assigned to product X would be:

Accepted Answer

A) $20,000. 
B) $24,000. 
C) $30,000. 
D) $36,000. 
E) $40,000.

Question 10

Burlington 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: $\begin{array} { | l | c | c | c | } 
\hline & \text { W } && \text { X } \
\hline \text { Separable processing costs } & \$ 40,000 && \$ 160.000 \
\hline \text { Sales price (per gallon) if processed beyond split-off } & \$ 14 && \$ 12 \
\hline
\end{array}$ The joint cost allocated to W under the net-realizable-value method would be:

Accepted Answer

A) $75,000. 
B) $80,000. 
C) $84,000. 
D) $90,000. 
E) $300,000.

Question 11

Southside General Hospital has two service departments (Patient Records and Accounting) and two production departments (Internal Medicine and Surgery). Which of the following allocations would likely take place under the reciprocal-services method?

Accepted Answer

A) Allocation of Accounting cost to Patient Records. 
B) Allocation of Patient Records cost to Internal Medicine. 
C) Allocation of Surgery cost to Accounting. 
D) Allocation of Internal Medicine cost to Surgery. 
E) Allocation of Accounting cost to Patient Records and Allocation of Patient Records cost to Accounting.

Question 12

Douglas Company, a new firm, manufactures two products, J and K, in a common process. The joint costs amount to $80,000 per batch of finished goods. Each batch results in 20,000 liters of output, of which 80% are J and 20% are K.
The two products are processed beyond the split-off point, with Douglas incurring the following separable costs: J, $2 per liter; K, $5 per liter. After the additional processing, the selling price of J is $12 per liter, and the selling price of K is $15 per liter.
Required:
A. Allocate the joint costs assuming the company uses the net-realizable-value method.
B. Assume that Douglas sold all of its production of K during the current accounting period. Compute K's sales revenue, cost of goods sold, and gross margin.
C. Is the firm's cost-of-goods-sold figure influenced by the choice of a joint-cost allocation method? Briefly explain.

Accepted Answer

The answer of Douglas Company, a new firm, manufactures two...

Question 13

Hunt Corporation has two service departments (S1 and S2) and two production departments (P1 and P2), and uses the step-down method of cost allocation. Management has determined that S1 provides more service to the firm than S2, and has decided that the number of employees is the best allocation base to use for S1. The following data are available: $\begin{array} { | c | c | c | } 
\hline \text { Department } && \begin{array} { c } 
\text { Number of } \
\text { Employees }
\end{array} \
\hline \text { S1 } & & 10 \
\hline \text { S2 } & & 20 \
\hline \text { P1 } & & 50 \
\hline \mathrm { P } 2 & & 70 \
\hline
\end{array}$ Which of the following statements is (are) true if S1 and S2 have respective operating costs of $280,000 and $350,000?

Accepted Answer

A) S2 should allocate a portion of its $350,000 cost to S1. 
B) S1's cost should be allocated over 140 employees. 
C) S1's cost should be allocated over 150 employees. 
D) S2 should allocate a total of $390,000 to P1 and P2. 
E) S1's cost should be allocated over 140 employees and S2 should allocate a total of $390,000 to P1 and P2.

Question 14

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

Accepted Answer

A) relative-sales-value method. 
B) net-realizable-value method. 
C) physical-units method. 
D) reciprocal-services method. 
E) gross margin at split-off method.

Question 15

Snakesaw Inc. has two service departments (S1 and S2) and two production departments (P1 and P2). S1 and S2 both use the number of employees as an allocation base. The following data are available: $\begin{array} { l l l } 
& \text { Number of } & \
& \underline {\text { Employees }} & \underline {\text { Budgeted Cost }} \
\text { S1 } & 40 & \$ 172,000 \
\text { S2 }  & 60 & 250,000 \
\text { P1 } & 300 & 660,000 \
\text { P2 } & 500 & 840,000
\end{array}$ Required:
A. Assuming use of the direct method:
1. Over how many employees would S1's budgeted cost be allocated?
2. How much of S2's cost would be allocated to P1?
3. How much of P1's cost would be allocated to S1?
B. Assuming use of the step-down method:
1. How much of S1's cost would be allocated to S2? Navan allocates S1's costs prior to allocating those of S2.
2. How much of S2's total cost would be allocated to P2?
3. How much of S2's total cost would be allocated to S1?

Accepted Answer

The answer of Snakesaw Inc. has two service departments (S1...

Question 16

Which of the following methods accounts for 100% of the services that occur between service departments?

Accepted Answer

A) Direct method. 
B) Indirect method. 
C) Reciprocal method. 
D) Step-down method. 
E) Dual-cost allocation method.

Question 17

Pitt Productions Company has two service departments (Accounting and Admin. and Public Relations) and two production departments (Set Assembly and Productions). The company allocates Public Relations cost on the basis of square footage and Accounting and Admin. cost on the basis of employees, and believes that Public Relations provides more service than Accounting and Admin. The square footage and employees in each department follows. $\begin{array} { l r r } 
& \text { Square } & \text { Employees } \
& \text { Footage } & \
\text { Accounting and Admin. } & 2,000 & 15 \
\text { Public Relations } & 11,000 & 20 \
\text { Set Assembly } & 17,000 & 60 \
\text { Productions } & 30,000 & 200
\end{array}$ Assuming use of the step-down method, which of the following choices correctly denotes the number of square feet and employees over which the Public Relations and Accounting and Admin. cost would be allocated respectively?

Accepted Answer

A) 47,000, 260. 
B) 49,000, 260. 
C) 58,000, 115. 
D) 58,000, 260. 
E) 60,000, 115.

Question 18

When allocating service department costs, companies should use:

Accepted Answer

A) actual costs rather than budgeted costs, and separate rates for variable and fixed costs. 
B) budgeted costs rather than actual costs, and separate rates for variable and fixed costs. 
C) budgeted costs rather than actual costs, and a rate that combines variable and fixed costs. 
D) actual costs rather than budgeted costs, and a rate that combines variable and fixed costs. 
E) a rate that is based on matrix theory.

Question 19

Rocky Mountain Company produces two products (X and Y) from a joint process. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Joint manufacturing costs for the year were $60,000. Sales values and costs were as follows:  $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$ $ \quad$$\text { If Processed Further }$
$\begin{array}{l}
\begin{array}{|c|c|c|c|c|}
\hline&& \text { Units } && \text { Salcs Valuc } \
\hline\text { Product } && \text { Madc } && \text { al Spli-oll } \
\hline \text { X } &&9.000 && \text { S40.000 } \
\hline \text { Y } &&6.000 && 80.000 \
\hline
\end{array}
\begin{array}{c|c|c|c|}
\hline & \text { Sales } && \text { Separable } \
\hline &\text { Value } && \text { Cosis } \
\hline &\$ 78.000 && \$ 10.500 \
\hline & 90.000 && 7.500 \
\hline
\end{array}
\end{array}$ If the joint production costs are allocated based on the relative-sales-value method, the amount of joint cost assigned to product X would be:

Accepted Answer

A) $18,000. 
B) $27,000. 
C) $33,000. 
D) $40,000. 
E) $20,000.

Question 20

The Scarsdale Clinic has two service departments (S1 and S2) and two "production" departments (P1 and P2). The service departments service the "production" departments as well as each other, and studies have shown that S2 provides the greatest amount of service. Which one of the following choices correctly denotes an allocation that would occur under the direct method?

Accepted Answer

A) S1's cost would be allocated to P1 and P2. 
B) P1's cost would be allocated to P2. 
C) S2's cost would be allocated to S1. 
D) P1's cost would be allocated to S1. 
E) P1's cost would be allocated to S2.

Exam 15: Allocation of Support Activity Costs and Joint Costs

When the step-down method is used, the service department whose costs are allocated first is often the department that:

When allocating joint costs, Grimsby Company calculates the final sales value of the various products manufactured and subtracts appropriate separable costs. The company is using the:

Southside General Hospital has two service departments (Patient Records and Accounting) and two production departments (Internal Medicine and Surgery) . Which of the following allocations would likely take place under the reciprocal-services method?

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

Which of the following methods accounts for 100% of the services that occur between service departments?

When allocating service department costs, companies should use: