Exam 14: Period Cost Allocation

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 fixed cost per year and the variable cost per hour, respectively, for the General Media Cassette Division using the dual-rate method, assuming that the allocation bases are capacity for fixed costs and budgeted capacity for variable costs?

Which of the following is NOT a common criteria used to guide decisions related to cost allocations?

Correl Company's power plant provides electricity for its two operating departments, A and B.The year 2018 budget for the power plant shows: Required: b.Compute the power plant costs allocated to A and B using the dual-rate method with actual usage as the allocation base for variable costs and budgeted usage as the allocation base for fixed costs. c.From the standpoint of Departments A and B, what are the two main benefits of the dual-rate method?

Rainier 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 B, and then those of C.The distribution of services is as follows: Required: a.Calculate the percentage of B's costs that should be allocated to Y. b.Calculate the percentage of C's costs that should be allocated to B.

One of the important aspects about the dual-rate method is that it allows managers to see how variable and fixed costs behave differently.

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) -Which of the following linear equations would represent the complete reciprocated cost of the Data Processing department?

For each item listed, select the appropriate purpose of cost allocation from the list below.A purpose may be used more than once. A)To provide information for economic decisions B)To motivate managers and other employees C)To measure income and assets for reports to external parties D)To justify costs or compute reimbursement amounts -To evaluate a make or buy decision

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 single-rate cost allocation method is used, what amount of copying facility costs will be budgeted for the Marketing Department?

Answer the following question(s)using the information below: The Bonawitz 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 amounts are used to calculate the allocation rates.Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations Department was 180,000 copies. -If a single-rate cost allocation method is used, what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

Landmark Systems Inc.designs and manufactures global positioning navigation systems for all-terrain vehicles and water craft.It has two support departments: Design and Engineering; and, two production departments, Vehicle Systems and Water Craft Systems.The budgeted level of service relationships at the start of the year was: Landmark Systems Inc.collects fixed costs and variable costs of each support department in separate pools.The budgeted costs for the year were: Support department pools are combined by cost behavior for allocation purposes.Production statistics (actual)are as follows: Required: a.Allocate the support department fixed costs using the dual-rate method.The company policy is to use design and engineering hours as the allocation base for variable costs; and, units produced for fixed costs.(round to the nearest cent) b.Allocate the support department fixed costs using the reciprocal method. c.Which method is preferable? Justify your answer.

The cost of operating the quality control department of Ames Manufacturing includes $608,000 of fixed costs and $400,000 of variable costs.The department normally budgets 21,000 inspection hours a year.Two departments receive quality control checks, fabrication and assembly.Fabrication is budgeted at 12,000 hours a year, while assembly is budgeted the remainder.Required: a.In July, fabrication used 1,000 inspection hours and assembly used 800 hours.How much did each department receive in quality control costs assuming a single-rate is used based on budgeted hours? b.In August, fabrication used 1,200 inspection hours and assembly used 900 hours.How much did each department receive in quality control costs assuming a dual-rate is used with budgeted usage for fixed costs and actual usage for variable costs? c.Which method seems more appropriate in this case? Explain.

Benefits of the single-rate method include

The step-down method allocates support department costs to other support departments and to operating departments in a sequential manner.

Answer the following question(s)using the information below.Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method.The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: -What is the complete reciprocated cost of the Maintenance Department?

For each item listed, select the appropriate purpose of cost allocation from the list below.A purpose may be used more than once. A)To provide information for economic decisions B)To motivate managers and other employees C)To measure income and assets for reports to external parties D)To justify costs or compute reimbursement amounts -To decide whether to add or delete a product line

An advantage of the single-rate method is that it is easier and always the most accurate cost-allocation choice.

The reciprocal allocation method does not incorporate interdepartmental relationships fully into the support department cost allocations.

Under the incremental method of allocating common costs

The single-rate method makes a distinction between fixed and variable costs.

The use of budget capacity in the denominator rate for a fixed cost pool is preferable as it reduces the ability of managers to manipulate the allocation rate.