Exam 17: Allocation of Support Activity Costs and Joint Costs

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

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

The Montrose Clinic has two service departments (Human Resources and Information Resources)and two "production" departments (In-patient Treatment and Out-patient Treatment).The service departments service the "production" departments as well as each other,and studies have shown that Information Resources provides the greater amount of service.Which of the following allocations would occur if Montrose uses the direct method of cost allocation?

Which of the following methods should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product?

Eastside Hospital has two service departments (Patient Records and Accounting)and two "production" departments (Internal Medicine and Surgery).It uses the reciprocal-services method of cost allocation and should allocate Internal Medicine cost to Surgery.

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

Pederson uses the direct method of cost allocation and allocates cost on the basis of employees.If Human Resources cost amounts to $1,800,000,how much of the department's cost would be allocated to Machining?

Which of the following methods fully recognizes the fact that some service departments provide service to other service departments?

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. Case A: Machining has been allocated 45% of H/R's cost ($90,000 ? $200,000)because it has 45% of the employees in the production departments.Since 189 represents 45% of the total,there are 420 employees in production (189 /0.45).Thus,Assembly has 231 personnel (420 - 189). Case B: Burke would prefer the step-down method because service department costs are allocated to other service departments (although not all).Such a practice makes managers aware that services are not cost-free to the organization. Case C: 113,600 (10,400 + 17,600 + 37,000 + 48,600) Case D: No.Under both approaches,all service department costs are allocated to production departments.This process yields equal totals for each method.

Consider the following statements about the direct method of service department cost allocation: I.Under the direct method,all service department costs are eventually allocated to production departments. II.The order in which service department costs are allocated to production departments is important. III.Once a service department's costs have been allocated,no costs are re-circulated back to that department. Which of the above statements is (are)correct?

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 Cafeteria?

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

Using the step-down method and assuming the Human Resources Department is allocated first,the amount of Janitorial cost allocated to Sales Department no.2 is:

Assuming use of the direct method,over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)?

Consider the following statements about the step-down method of service department cost allocation: I.Under the step-down method,all service department costs are eventually allocated to production departments. II.The order in which service department costs are allocated is important. III.After a service department's costs have been allocated to other departments,no costs are re-circulated back to that service department. Which of the above statements is (are)correct?

Ricardo Corporation has two service departments (Maintenance and Human Resources)and three production departments (Machining,Assembly,and Finishing).The two service departments service each other,and studies have shown that Maintenance provides the greater amount of service.Given the various cost allocation methods,which of the following choices correctly denotes whether Maintenance cost would be allocated to Human Resources?

Consider the following statements about service department costs: I.The costs of the Human Resources Department in a manufacturing organization must be allocated to production departments in order to achieve a correct costing of inventory. II.The allocation of service department costs requires that an organization select both an allocation base and an allocation method. III.Service department cost allocations are more relevant for firms involved in service industries (e.g. ,repair,health care)than for those involved with manufacturing. Which of the above statements is (are)correct?

Using the step-down method and assuming the Human Resources Department is allocated first,the total amount of service department cost allocated to the Finishing Department is:

Which of the following methods recognizes some (but not all)of the services that occur between service departments?

Which of the following methods would be of little use when allocating service department costs to production departments?