Exam 14: Period Cost Allocation

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?

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?

What is the complete reciprocated cost of the Data Processing and the Plant Maintenance,respectively?

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

The direct allocation method ignores any services rendered between support departments.

The second-ranked cost object is termed the incremental party and is allocated a proportionate share of common costs based on revenue.

What is the cost allocated from the Maintenance Department to Department A using the step-down method if the Personnel Department is allocated first?

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.

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?

The step-down method allocates support department costs to other support departments and to operating departments in a sequential manner.

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

The Maintenance Department has been servicing Gizmo Production for four years.Beginning next year,the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production.As a result,maintenance costs are expected to increase from $480,000 per year to $500,000 per year.The Scrap-Processing Department will use 25% of the maintenance efforts. Required: a.Using the stand-alone cost-allocation method,identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year. b.Using the incremental cost-allocation method,identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.

Assuming that fixed and variable costs are allocated according to capacity used then the fixed and variable costs allocated to the Barbell Department will be

Without explicit written cost-plus contracts,producer costs can be passed on to the buyer.

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.

Under the incremental method,the first incremental user usually receives the highest allocation of the common costs.

A budgeted rate helps to motivate the manager of a support department.

When using the causality criterion,cost drivers are selected based on a cause-and-effect relationship between the business functions.

If a dual-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.