Exam 14: Period Cost Allocation

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

Broadway Department Store allocates the personnel and payroll department costs to the sales departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide services to each other. Personnel costs are allocated by number of employees and payroll costs are allocated by gross payroll. Costs and other information for January were as follows: Required: Prepare a schedule, which includes the total cost of operating the sales departments for January. Allocate service costs using the step-down method with the sequence of allocation based on highest percentage support concept.

One of the purposes of allocating indirect costs is to justify costs or compute reimbursement amounts.

Brandy has been manager of the downtown branch of General Bank for several years. During this time she has received very good annual evaluations for her management of the branch. However, during the current year (it is now July) she has been upset with the monthly performance report generated by the budgeting department at the home office. Her branch has been making steady progress with controlled growth during the year and she knows of no reason why the report has such widely fluctuating variances. One item that she suspects is causing some of the problem is that most of the costs of the bank are fixed, with each branch getting an allocation of home office expenses each month. The bank also has some branches which are fast growing and some of which are having operating difficulties. Required: From the information presented, what do you suggest as a possible cause of the reporting problems?

Benefits from using a well-designed cost allocation system are highly visible.

The single-rate method is when all indirect costs are combined in one cost pool and allocated to cost objects via a single rate per unit.

The costs of designing and implementing sophisticated cost allocation systems are usually not very visible.

John Ebert, a graduating student at a university in Calgary, received an invitation to visit a prospective employer in Halifax. A few days later, he received an invitation from a prospective employer in Toronto. He decided to combine his visits, travelling from Calgary to Halifax, Halifax to Toronto, and Toronto to Calgary. Ebert paid $1,900 for his three-leg flight (Calgary to Halifax, Halifax to Toronto, Toronto to Calgary). In addition, he paid $30 for a limousine from his home to Calgary Airport and another $30 for a limousine from Calgary Airport to his home when he returned. Required: a. Allocate the $1,900 airfare between the employers in Halifax and Toronto using both the stand-alone and incremental methods? b. How would you allocate the $60 limousine fare?

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

Should a company allocate its corporate costs to divisions?

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.

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 Capping Department's total cost if both service departments are allocated using the complete reciprocated cost method and their costs for the year were $375,000 for Plant Maintenance and $100,000 for Data Processing?

Which method allows for partial recognition of the services rendered by support departments to other support departments?