Exam 14: Period Cost Allocation

Which of the following could be described as a department that adds value to a product or service, which is observable by a customer?

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 Large Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Deciding whether to make a component part or to purchase it, would be an example of which cost allocation purpose?

Two entities, Burch Company and Carey Company, share a common warehouse facility.Total costs for the facility are budgeted at $1,000,000.Accountants have estimated that if Burch Company did not use the facility the cost incurred would be reduced by 30 percent.What amount of the budgeted cost should be allocated, respectively, to Burch and Carey if the incremental allocation method is used?

The manager of the Finishing Department is concerned about how the costs of service departments are being assigned to the Mixing Department.He knows that his department uses support activities entirely different from the other production departments.As a matter of fact, when something goes wrong in the Mixing Department the entire plant has to stop production because of the critical nature of the chemical processing in that department.Several support departments, such as maintenance and clean-up stop whatever they are doing and come to help the Mixing Department.However, it appears that the Mixing Department is not assigned any additional support costs because all support costs are assigned on the basis of actual outputs.Required: Explain the methods available for the allocation of costs from one department to another.Which method would you recommend for this company and why?

If the government wants to contract a very large scale project with significant uncertainty about what the final cost will be, often a cost-plus contract is awarded to attract qualified contractors who may otherwise not be willing to accept the risks inherent in a guaranteed bid price.

The cost of operating the Human Resources department of Goodtime Foods Inc.includes $216,000 of fixed costs and $57,600 of variable costs.The department normally budgets 7,200 human resource hours a year.Two departments receive human resource support, Production and Sales.Production is budgeted at 5,040 hours a year, while Sales is budgeted the remainder.Required: a.In July, Production used 600 human resource hours and Sales used 200 hours.How much did each department receive in human resource costs assuming a single-rate is used based on budgeted hours? b.In August, Production used 500 human resource hours and Sales used 200 hours.How much did each department receive in human resource 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.

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 variable 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 variable costs using the reciprocal method. c.Comment on the effect from combining the variable cost pools as opposed to considering them separately when applying the allocation methods.

A support department adds value directly to a product or service, which is observable by the customer.

If one is willing to put in the time and expense, it is always possible to identify the specific cause-and-effect relationship needed for a cost allocation base.

The method that allocates costs in each cost pool using the same rate per unit is known as the

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 is the allocation rate per hour used?

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 costs of unused capacity are highlighted when

Use the information below to answer the following question(s).We Be Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 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. -Assuming that that fixed and variable costs are allocated according to capacity used then the fixed and variable costs allocated to the Sauna Department will be

Which of the following methods of allocating support department costs is both simple and intuitive?

Which method allocates costs by explicitly including the mutual services rendered among all support departments?

Which of the following is the first step in the cost-allocation decision process?

Seacrest Corp.allocates support department overhead costs to operating departments X and Y by means of the reciprocal allocation method.Information for the current month is as follows: Services provided from departments above: Required: Provide the linear equation that represents the complete reciprocated cost of Support Department A.

Two entities, Cooper Company and Magic Company, share a common warehouse facility.Total costs for the facility are budgeted at $2,000,000.Accountants have estimated that if Cooper Company did not use the facility the cost incurred would be reduced by 30 percent.What amount of the budgeted cost should be allocated, respectively, to Cooper and Magic if the incremental allocation method is used? Assume that Magic is he primary party.

The user department is responsible for any unfavourable cost variances during the budgeting period if budgeted prices and quantities are used for cost allocation.