Exam 15: Allocation of Support Activity Costs and Joint Costs

Treasures Corporation has two service departments (Human Resources and Marketing) and two production departments (Machining and Assembly). The company allocates Marketing cost on the basis of square footage and believes that Marketing provides more service than Human Resources. The square footage occupied by each department follows. Human Resources 8,000 Marketing 22,000 Machining 12,000 Assembly 40,000 Assuming use of the step-down method, over how many square feet would the Marketing cost be allocated?

Bowmanville Manufacturing Company uses the step-down method for allocating its support department costs to operating departments. The overhead costs of support Department A are to be allocated first, followed by the costs of Department B, and then those of Department C. The distribution of services is as follows: $\underline {\text { Supplied By } }$ $\quad$ $\quad$ $\underline {\text { Support Departments } }$ $\quad$ $\quad$$\underline {\text { Operating Departments } }$ A B C X Y A - 10\% 50\% 20\% 20\% B 40\% - 15\% 30\% 15\% C 25\% 25\% - 20\% 30\% The percentage of Support Department B's costs allocated to Operating Department Y is:

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?

Barry Company manufactures X-111, X-112, and X-113 from a joint process. The following information is available for the period just ended: Units produced 6,000 14,000 30,000 50,000 Joint cost allocation ? \ 18,400 ? \ 80,000 Sales value at split-off \ 104,000 ? ? \ 260,000 Required: A. Does Barry allocate joint costs by using the physical-units method? Explain. B. Assume that Barry does not use the physical-units method but instead allocates joint costs by using the relative-sales-value method. Find the four unknowns in the preceding table.

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

Quickdraw Corporation has two service departments (Accounting and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Accounting 10 Human Resources 20 Machining 150 Assembly 100 Quickdraw uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources and Accounting cost amounts to $2,400,000 and $1,300,000 respectively. Management believes that the Human Resources department provides more service to the firm than Accounting. How much Human Resources cost would be allocated to Machining?

Coronation General 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?

The Glowmeter Manufacturing Company has two production departments (Assembly and Finishing) and two service departments (Human Resources and Maintenance). The projected usage of the two service departments is as follows: Use of Human Use of Resources Maintenance Human Resources N/A 10\% Maintenance 5\% N/A Assembly 70\% 30\% Finishing 25\% 60\% The budgeted costs in the service departments are: Human Resources, $60,000 and Maintenance, $30,000. Using the direct method, the amount of Maintenance Department cost allocated to the Finishing Department is:

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

Riverview Inc. has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing). Maintenance is the largest 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?

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 }$ Units Salcs Valuc Product Madc al Spli-oll X 9.000 S40.000 Y 6.000 80.000 Sales Separable Value Cosis \ 78.000 \ 10.500 90.000 7.500 If the joint production costs are allocated based on the net-realizable-value method, the amount of joint cost assigned to product Y would be:

Yole Incorporated has two service departments (Accounting and Human Resources) and two production departments (Design and Finishing). The company uses the direct method of service-department cost allocation, allocating Accounting cost on the basis of square footage and Human Resources cost on the basis of number of employees. Budgeted allocation-base and operating data for the four departments are as follows. Accounting Human Square feet 4,000 2,000 50,000 60,000 Employees 25 20 140 160 Machine hours 200 \@cdots 80,000 20,000 Labor hours 45,000 25,000 100,000 150,000 Additional information: Budgeted costs of Accounting and Human Resources respectively amount to $2,240,000 and $1,500,000. The anticipated overhead costs incurred directly in the Design and Finishing Departments respectively total $3,840,000 and $3,340,000. The manufacturing overhead application bases used by Yole's production departments are: Design, labour hours; Finishing, machine hours. Yole's policy holds that a department's overhead application rate is based on a department's own overhead plus an allocated share of service-department cost. Required: A. Allocate the company's service-department costs to the producing departments. B. Compute the overhead application rates for Design and Finishing.

Garvin Corporation manufactures joint products P1 and P2. During a recent period, joint costs amounted to $30,000 in the production of 10,000 gallons of P1 and 20,000 gallons of P2. Garvin can sell P1 and P2 at split-off for $2.00 per gallon and $2.50 per gallon, respectively. Alternatively, both products can be processed beyond the split-off point, as follows: P1 P2 Separable Processing costs \ 2,500 \ 3,500 Sales price per gallon if processed beyond split-off \ 2.70 \ 3.00 The joint cost allocated to P2 under the relative-sales-value method would be:

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

The point in a joint production process where each individual product becomes separately identifiable is commonly called the:

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

The Glowmeter Manufacturing Company has two production departments (Assembly and Finishing) and two service departments (Human Resources and Maintenance). The projected usage of the two service departments is as follows: Use of Human Use of Resources Maintenance Human Resources N/A 10\% Maintenance 5\% N/A Assembly 70\% 30\% Finishing 25\% 60\% The budgeted costs in the service departments are: Human Resources, $60,000 and Maintenance, $30,000. Using the step-down method and assuming the Human Resources Department cost is allocated first, the total amount of service department cost allocated to the Finishing Department is:

Lakehead 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: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline {\text { Provider of Service }}$ Library \ldots 10\% Computing Services \ldots - School of Business 20\% 60\% School of Health 80\% 30\% Required: 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. Lakehead allocates the cost of Computing Services first.

Western Incorporated 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. Human Resources 3,500 Building Maintenance 8,700 Machining 9,900 Assembly 15,000 Over how many square feet would the Building Maintenance cost be allocated (i.e., spread) with the direct method and the step-down method? Direct Method Step-Down Method 1 24.900 28.400 2 24.900 37.100 3 28.400 24,900 4 37.100 24.900 5 28.400 37.100

Morningside Company has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing). The two service departments service the production departments as well as each other, and studies have shown that Maintenance provides the greatest amount of service. On the basis of this information, which of the following cost allocations would likely occur under the step-down method?