Exam 17: Allocation of Support Activity Costs and Joint Costs

Consider the following statements about joint product cost allocation: I.Joint product cost is allocated because it is necessary for inventory valuation. II.Joint product cost is allocated because it is necessary for making economic decisions about individual products (e.g. ,sell at split-off or process further). III.Joint cost may be allocated to products by using several different methods. Which of the above statements is (are)correct?

If the joint production costs are allocated based on the physical-units method,the amount of joint cost assigned to product X would be:

Nash 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. Variable and fixed administrative costs total $180,000 and $400,000,respectively.If Nash uses dual-cost accounting procedures,the total amount of administrative cost to allocate to Department 2 would be:

Apex Metallurgy,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 Human Resources cost on the basis of employees.It believes that Building Maintenance provides more service than Human Resources.The square footage and employees in each department follow. Assuming use of the step-down method,which of the following choices correctly denotes the number of square feet and employees over which the Building Maintenance cost and Human Resources cost would be allocated (i.e. ,spread)?

Isthmus Corporation 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?

Which of the following would not be considered a service department in a hospital?

The Metropolitan 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 greater amount of service.Which of the following choices correctly denotes an allocation that would not occur under (1)the direct method and (2)the step-down method of cost allocation?

Using the direct method,the amount of Janitorial Department cost allocated to the Finishing Department is:

Under dual-cost allocation,fixed costs are allocated on the basis of a user department's:

Ovation Corporation 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: A.1.800 (300 + 500) 2.$93,750 [$250,000 * (300/800)] 3.None,because production department costs are not allocated to service departments. 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.1.S1's costs are allocated over 860 employees (60 + 300 + 500).Thus,$12,000 will be allocated to S2 [$172,000 * (60/860)]. 2.S2's costs total $262,000 ($250,000 + $12,000),resulting in $163,750 being allocated to P2 [$262,000 * (500/800). 3.None,because S1's costs are allocated prior to those of S2.Once a department is closed,no costs are allocated back to it. B.Assuming use of the step-down method: 1.How much of S1's cost would be allocated to S2? Ovation 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?

The Gross Margin at Split-Off method 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.

Which of the following statements about joint-cost allocation is false?

Zena Company 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. If the joint costs are allocated based on the physical-units method,the amount of joint cost assigned to product A would be:

Ojai Chemical manufactures two industrial chemicals in a joint process.In October,$200,000 of direct materials were processed at a cost of $300,000,resulting in 16,000 pounds of Pentex and 4,000 pounds of Glaxco.Pentex sells for $35 per pound and Glaxco sells for $60 per pound.Management generally processes each of these chemicals further in separable processes to manufacture more refined products.Pentex is processed separately at a cost of $7.50 per pound,with the resulting product,Pentex-R,selling for $45 per pound.Glaxco is processed separately at a cost of $10 per pound,and the resulting product,Glaxco-R,sells for $100 per pound. Required: A.Compute the company's total joint production costs. A.Joint production costs total $500,000 ($200,000 + $300,000). B. B.Assuming that total joint production costs amounted to $500,000,allocate these costs by using: 1.The physical-units methoD. 2.The relative-sales-value methoD. 3.The net-realizable-value methoD.

Many companies use the dual-rate method of cost allocation. Required: A.How does the dual-rate method work? A.The dual-rate method involves creating two overhead rates,one for variable costs and another for fixed costs.The variable costs are normally allocated on the basis of short-run usage of the service department's output;fixed costs are allocated on the basis of long-run usage. B.Is there any advantage of the dual-rate method over a method that uses a combined,lump-sum single rate? Briefly explain. B.Yes.When a single rate is used,the cost allocated to a user department may be influenced by the amount of service consumed by another department.For example,a user department's service consumption could remain flat;yet the amount of cost allocated to that department could increase or decrease over previous amounts based solely on actions of other users.Dual rates eliminate this problem.

Harvest 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: Which of the following statements is (are)true if S1 and S2 have respective operating costs of $280,000 and $350,000?

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

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

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?

The Hearts and Hands Clinic has two service departments (Human Resources and Information Systems)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 Systems provides the greater amount of service.Which of the following allocations would not occur if Hearts uses the step-down method of cost allocation?