Exam 17: Allocation of Support Activity Costs and Joint Costs

Western Kentucky State College has two service departments,the Library and Computing Services,that assist the School of Business and the School of Health.Budgeted costs of the Library and Computing Services are $800,000 and $1,800,000,respectively.Usage of the service departments' output during the year is anticipated to be: A.Use the direct method to allocate the costs of the Library and Computing Services to the School of Business and the School of Health. B.Repeat requirement "A" using the step-down method.Western allocates the cost of Computing Services first. School of Business: $1,080,000 + $196,000 = $1,276,000 School of Health: $540,000 + $784,000 = $1,324,000

When allocating service department costs,companies should use actual costs rather than budgeted costs,and separate rates for variable and fixed costs.

Consider the following statements about dual-cost allocation: I.Dual-cost allocation prevents a change in the short-run activity of one department from affecting the cost allocated to another department. II.Dual-cost allocations create an incentive for user department managers to understate their expected long-run service needs. III.Dual-cost allocations are generally preferred over lump-sum allocations,or those that combine variable and fixed costs together. Which of the above statements is (are)true?

Westside Hospital has two service departments (Patient Records and Accounting)and two "production" departments (Internal Medicine and Surgery).Which of the following allocations would not take place under the reciprocal-services method of cost allocation?

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:

The joint cost allocated to P under the relative-sales-value method would be:

The joint cost allocated to Q under the relative-sales-value method would be:

The joint cost allocated to X under the net-realizable-value method would be:

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. 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:

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 Assembly?

When allocating service department costs,companies should use:

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?

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. Over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)with the direct method and the step-down method?

Using the step-down method and assuming that the Human Resources Department is allocated first,the amount of Human Resources cost allocated to Sales Department no.3 is:

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

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

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

Romano 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. If Romano uses dual-cost accounting procedures and fixed administrative costs total $1,000,000,the amount of fixed administrative cost to allocate to Department 1 would be:

The direct method ignores the fact that some service departments provide service to other service departments.

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: 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.