Exam 14: Period Cost Allocation

Use the information below to answer the following question(s). John, 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) -What is the complete reciprocated cost of the Data Processing and the Plant Maintenance, respectively?

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

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 direct method, what amount of Warehouse Department costs will be allocated to Department Books?

Marvelous Motors is a small motor supply outlet that sells motors to companies that make various small motorized appliances. The fixed operating costs of the company are $300,000 per year. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to the motors and wants to review the company status on a quarterly basis. The shareholder is trying to determine whether the costs should be allocated each quarter based on the 25% of the annual fixed operating costs ($75,000) or by using an annual forecast budget to allocate the costs. The following information is provided for the operations of the company: Required: a. What amount of fixed operating costs are assigned to each motor by quarter when actual sales are used as the allocation base and $75,000 is allocated? b. How much fixed cost is recovered each quarter under requirement a.? c. What amount of fixed operating costs are assigned to each motor by quarter when forecast sales are used as the allocation base and the rate is calculated annually as part of the budgetary process? d. How much fixed cost is recovered each quarter under requirement c.? e. Which method seems more appropriate in this case? Explain.

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 B 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 Personnel Department?

For each of the following cost pools select an appropriate allocation base from the list below if the overall cost object is to assign costs to production departments. Each base can be used only once. Assume a manufacturing company. Cost pools: a. Vice-president of finance's office expenses. b. Computer operations used in conjunction with manufacturing. c. Personnel department. d. Manufacturing machinery cost. e. Energy costs. Allocation bases for which the information system can provide data: 1. Number of employees per department. 2. Employee wages and salaries per department. 3. Production facility square metreage. 4. Hours of operation by production department. 5. Machine hours by department. 6. Machines per department. 7. Operations costs of each department. 8. Hours of computer use per month per department. 9. Indirect labour hours per department.

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 cost per hour of use for the Cassette department and the CD Department assuming budgeted usage is the allocation base and a single-rate method is used?

The vector of constants is the list of cost pools of each support and operating department.

Once a cost pool has been established, it should not need to be revisited or revised.

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 Warehouse 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)

Which of the following does NOT apply to support departments?

To encourage the design of products that are simpler to manufacture or less costly to service, would be an example of which cost allocation purpose?

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

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?

User departments will be able to determine their allocated costs for each category in advance if budgeted usage is the allocation base.

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?

The incremental common cost allocation method requires that one user be viewed as primary and other users as incremental.

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

When budgeted cost-allocation rates are used, managers of the supplier division are motivated to improve efficiency.