Exam 14: Period Cost Allocation

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 provided and common variable costs are to be allocated on the basis of capacity used. -Both fixed and variable costs are allocated according to capacity used. The fixed and variable costs allocated to the Barbell Department are

The single-rate cost-allocation method provides better information for decision making than 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 under the step-down method.

Correl Company's power plant provides electricity for its two operating departments, A and B. The year 2010 budget for the power plant shows: Required: a. Compute the budgeted power-plant costs allocated to A and B using the single-rate method with budgeted usage as the allocation base. b. Compute the budgeted 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?

Under the stand-alone method of allocating common costs

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

Which cost allocation method differentiates between variable and fixed costs?

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

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

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?

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

When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

The maintenance department has been servicing the production of gizmos manufacturing for three years. During this time its costs have varied very little. Beginning next year the company is adding a scrap recycling department to recycle the scrap materials from widget processing. It is anticipated that the maintenance department's cost will increase from $960,000 to $1,000,000. The recycling department will utilize 20 percent of the maintenance efforts. Required: a. Calculate the allocation of the maintenance costs to gizmos and recycling if the incremental allocation method is used. b. Calculate the allocation of the maintenance costs to gizmos and recycling if the stand-alone allocation method is used.

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 Maintenance Department is allocated to Department B using the direct method?

Blaster Drive-In is a fast-food restaurant that sells burgers and hot dogs in a 1950s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to either the burgers or the hot dogs. The following information is provided for the operations of the company: Required: a. What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February? b. Hot dog sales for January and February remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not. Comment on any other observations.

The allocation of one particular cost must satisfy all four justifications of cost allocation.

Which of the following is the most widely used method of allocating support department costs?

If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

A disadvantage of allocating fixed costs according to actual usage is that

An advantage to using budgeted usage, rather than actual usage, for the allocation base is that