Exam 14: Period Cost Allocation

Indirect costs typically constitute a large percentage of the costs assigned to cost objects.

Using the single-rate method transforms the fixed costs per hour into a variable cost to users of that facility.

Alpha Roofing Ltd.and Beta Roofing Ltd.are each owned by the Thompson brothers, Ned and Ralph.Alpha does mostly residential buildings and Beta focuses on the commercial building market.Currently each lease a conveyor belt that moves roofing materials from the ground to the roof for $30 per hour.Alpha Roofing requires approximately 1,200 hours per year; and, Beta Roofing 600 hours per year.They are considering purchasing a conveyor belt that has an estimated hourly cost of $20 over its' useful life.Required: a.Using the stand-alone cost-allocation method, identify the amount of conveyor belt cost that will be allocated to each of the companies next year. b.Using the incremental cost-allocation method, identify the amount of conveyor belt cost that will be allocated to each of the companies next year assuming that Apha is the primary party.

Barrel 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? d.Calculate the variable overhead efficiency variances for each department.Who would be the appropriate person(s)to provide information on the causes of these variances?

The dual-rate cost allocation method classifies costs into two pools, a budgeted cost pool and an actual cost pool.

Use the information below to answer the following question(s).Low-Cost Rentals Ltd.incurred $60,000 of common fixed costs and $90,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used. For both departments, common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used. -The fixed and variable costs allocated to the Equipment Department are

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 are the fixed cost per year and the variable cost per hour for the General Media CD Division if the dual-rate method is used? Assume that the allocation bases are budgeted usage for fixed costs and for variable costs.

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 Personnel Department?

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 allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

The direct allocation method ignores any services rendered between support departments.

The reciprocal method of support department cost allocation is the most precise method and therefore is widely adopted.

AAA Fence Company manufactures wireless and aluminium fences in a common manufacturing facility.The company has become aware of unusual discrepancies in the costs of its products which management cannot explain.It seems that the sales and related production of wireless fences are in a very consistent growth market and are easily predicted.However, the sales and related production of aluminium fences are very erratic.Management does not understand why the costs per unit of wireless fences change when the production level seldom changes.Required: a.After some investigation you determine that for the last two quarters, the common fixed cost of the manufacturing operation has been $800,000.For the first quarter 12,000 wireless and 13,000 aluminium units were produced, respectively.For the second quarter, 12,000 wireless and 8,000 aluminium units were produced, respectively.What were the total cost per product and the cost per unit of each product in each quarter when production units is the allocation basis? b.After studying the results of the above computations you decide to use the company's average quarterly production of 12,000 wireless and 10,500 aluminium units as the allocation base, respectively.What are the total cost per product and the cost per unit per quarter for each product when average production is used? c.Which allocation base do you recommend, and why?

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 cost inventories for reporting on a company's tax return

List three benefits from the careful costing of combinations of quantities of products and services in bundled products.

Which cost allocation method differentiates between variable and fixed costs?

Campaign Printing has two service departments, S1 and S2, and two production departments, P1 and P2.The data for April were as follows: Required: a.Set up algebraic equations in linear equation form for the service and production departments. b.Using the reciprocal method determine the reciprocated cost for each service department and allocate the reciprocated costs of each service department to the production departments.

The Rapid Recycling Inc.operates one central plant that has two divisions, the Residential Division and the Commercial Division.The following data apply to the coming budget year: Budgeted costs of the operating the plant for 4,000 to 8,000 hours: Budgeted long-run usage per year: Assume that practical capacity is used to calculate the allocation rates.Further assume that actual usage of the Residential Division was 410 hours and the Commercial Division was 190 hours for the month of June.Required: a.If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for the Residential Division each month? For the Commercial Division each month? b.For the month of June, if a single-rate cost allocation method is used, what amount of cost will be allocated to the Residential Division? To the Commercial Division? Assume actual usage is used to allocate operating costs. c.If a dual-rate cost allocation method is used, what amount of operating costs will be budgeted for the Residential Division each month? For the Commercial Division each month? d.For the month of June, if a dual-rate cost allocation method is used, what amount of cost will be allocated to the Residential Division? To the Commercial Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

A budgeted rate helps to motivate the manager of a support department.

The Maintenance Department has been servicing Gizmo Production for four years.Beginning next year, the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production.As a result, maintenance costs are expected to increase from $480,000 per year to $500,000 per year.The Scrap-Processing Department will use 25% of the maintenance efforts.Required: a.Using the stand-alone cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year. b.Using the incremental cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.

What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?