Exam 14: Period Cost Allocation

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.

Use the information below to answer the following question(s). Data Source Media manufactures cassettes and CDs. Management is attempting to set the budget for the coming year. Two divisions (Cassette and CD) of the company utilize one plant location. The following data have been prepared for review. -What is the allocated cost to the two departments, respectively, if the single rate is $1,000? Assume that the Cassette and CD Departments used 1,750 and 200 hours, respectively.

For each item listed, select the appropriate purpose of cost allocation from the list below. A purpose may be used more than once. 1. To cost a product at a fair price for government contracts 2. To encourage simpler product design 3. To decide on an approprite selling price for a special-order product 4. To cost inventories for reporting on a company's tax return 5. To encourage the sales department to focus on high-margin products 6. To evaluate a make or buy decision 7. To cost inventories for the balance sheet 8. To decide whether to add or delete a product line Purposes of cost allocation: a. To provide information for economic decisions b. To motivate managers and other employees c. To justify costs or compute reimbursement amounts d. To measure income and assets for reports to external parties

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

Answer the following questions 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 Data Centre Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

Answer the following questions 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 budgeted for the Marketing Department?

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: -How much of the cost of the Personnel Department is allocated to Department A using the direct method?

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?

AAA Fence Company manufactures wireless and aluminum 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 aluminum 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 aluminum units were produced, respectively. For the second quarter, 12,000 wireless and 8,000 aluminum 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?

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

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

Which of the following is False concerning homogeneous cost pools?

Hunt Company and Indio Company are noncompeting lines of business and use a common database for marketing purposes. The variable costs associated with accessing the database are readily identifiable and kept in separate cost pools that are charged to each user. The fixed costs of maintaining the database, however, cannot be identified by user on a cause-and-effect basis. These fixed costs for the next year are budgeted at $55,000. If Hunt does not use the database, the fixed costs to Indio are $48,000. An outside vendor offers to provide Hunt access to a comparable database for a fixed fee fo $60,000 per year plus variable costs of accessing the database. The same vendor offers to provide Indio access to that database for a fixed fee of $20,000 per year plus variable costs of accessing the database. Required: Compute how much of the $55,000 fixed costs of maintaining the database are charged to by each user: a. Under the stand-alone allocation method. b. Under the incremental allocation method, assuming Hunt Company is regarded as the primary user.

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 used most often.

Which of the following criteria subsidizes poor performers at the expense of the best performers?

When choosing between budgeted usage and actual usage as allocation bases, which of the following is true?

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

Which of the following terms describes a cost of operating a facility, operation, activity area, or like cost object that is shared by two or more users?

A matrix that is only one column of numbers is called a vector.