Exam 14: Period Cost Allocation

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract.What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?

Answer the following questions using the information below: The Charmatz Corporation has a central copying facility.The copying facility has only two users, the Marketing Department and the Operations Department.The following data apply to the coming budget year: Budgeted costs of operating the copying facility for 400,000 to 600,000 copies: Budgeted long-run usage in copies per year: Budgeted amounts are used to calculate the allocation rates.Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies. -If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department?

When actual cost allocation rates are used, managers of the supplier division are motivated to improve efficiency.

Use the information below to answer the following question(s).The owner of Hi-Tech Fiberglass Fabricators Inc.is interested in using the reciprocal allocation method.The following data from operations were collected for analysis.Budgeted manufacturing overhead costs: Service furnished: By Plant Maintenance (budgeted labour hours) By Data Processing (budgeted computer time) -The step-down allocation method

Use the information below to answer the following question(s).General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review. -What is the allocated cost to the two General Media divisions, respectively, if the single rate is $1,000? Assume that the Cassette and CD Divisions used 1,750 and 200 hours, respectively.

Without explicit written cost-plus contracts, producer costs can be passed on to the buyer.

Answer the following question(s)using the information below: The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users, the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year: Budgeted amounts are used to calculate the allocation rates.Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours. -If a dual-rate cost allocation method is used, what amount of materials laboratory costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Under the incremental method, the first incremental user usually receives the highest allocation of the common costs.

When budgeted cost allocation rates are used, variations in actual usage by one division affect the costs allocated to other divisions.

John Ebert, a graduating student at a university in Calgary, received an invitation to visit a prospective employer in Halifax.A few days later, he received an invitation from a prospective employer in Toronto.He decided to combine his visits, travelling from Calgary to Halifax, Halifax to Toronto, and Toronto to Calgary.Ebert received job offers from both companies.On his return, he decided to accept the offer in Toronto.He was puzzled as to how to allocate his travel costs between the two employers.He gathered the following data: Ebert paid $1,900 for his three-leg flight (Calgary to Halifax, Halifax to Toronto, Toronto to Calgary).In addition, he paid $30 for a limousine from his home to Calgary Airport and another $30 for a limousine from Calgary Airport to his home when he returned.Required: a.Allocate the $1,900 airfare between the employers in Halifax and Toronto using both the stand-alone and incremental methods? b.How would you allocate the $60 limousine fare?

Which of the following departments is least likely to be a support department for a boat manufacturing company?

Gotham University offers only high-tech graduate-level programs.Gotham has two principal operating departments, Engineering and Computer Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services.The base used to allocate facility and technology maintenance is budgeted total maintenance hours.The base used to allocate enrollment services is number of credit hours for a department.The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000.The following chart summarizes budgeted amounts and allocation-base amounts used by each department: Required: Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept.Compute the total amount of support costs allocated to each of the two principal operating departments, Engineering and Computer Sciences.

A company might choose to allocate corporate costs to various divisions within the company for what four purposes? Give an example of each.

Answer the following question(s)using the information below: The Sturgeon Bay Corporation currently uses a manufacturing facility costing $400,000 per year; 80% of the facility's capacity is currently being used.A start-up business has proposed a plan that would utilize the other 20% of the facility and increase the overall costs of maintaining the space by 5%. -If the stand-alone method were used, what amount of cost would be allocated to the start-up business?

Answer the following question(s)using the information below: The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users, the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year: Budgeted amounts are used to calculate the allocation rates.Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours. -If a single-rate cost allocation method is used, what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate copying costs.

Benefits of the dual-rate method include

Answer the following question(s)using the information below: Betty's Book and Music Store has two service departments, Warehouse and Data Centre.Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehouse-hours.Data Centre Department costs of $75,000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125,000 and $150,000, respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows: -Using the step-down method, what amount of Warehouse Department cost will be allocated to Music Department if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

In a firm's value chain upstream costs are categorized as

Under the stand-alone method of allocating common costs

Use the information below to answer the following question(s).Joe's Tire Company has two support departments, Personnel and Maintenance.The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used.The Personnel Department costs of $20,000 are allocated based on the number of employees.Costs of Departments A and B are $40,000 and $60,000, respectively.Data on standard service hours and number of employees are as follows: -What is the cost allocated from the Maintenance Department to Department A using the step-down method if the Personnel Department is allocated first?