Exam 12: Cost Allocation

Summer Company makes three types of products.The company has two types of customers.The cost to serve all customers is $12,000 and is allocated to customer types based on the number of manager visits to customer locations.The following data are available: Product 1 Product 2 Product 3 Sales \ 5,000 \ 6,000 \ 30,000 Cost of goods sold Gross margin \1 ,000 \1 ,200 \1 5,000 Customer type 1 Customer type 2 Product 1 Sales \ 500 \ 4,500 Product 2 Sales \ 1,000 \ 5,000 Product 3 Sales \ 16,000 \ 14,000 Manager visits 4 16 What is the operating profit (loss)for all three products for Customer Type 2?

When allocating central corporate support costs to products,companies often use revenues as the allocation base because ________.

Timothy Company manufactures two models of pens,a standard model and a deluxe model.Three activities have been identified in the production of the pens.The following information is available: Direct Number of Number of Number of Product Setups Components Labor Hours Standard 22 8 375 Deluxe 28 12 225 Cost pool Total costs Cost Driver Setup Costs \ 15,000 Number of setups Assembly Costs \3 6,000 Number of components Labor Costs \9 ,000 Number of direct labor hours If activity-based costing is used,the setup cost assigned to the standard model is ________.

When using the step-down method,once a service department's costs are allocated to other departments,nothing is ever allocated back to it.

Wehr Company has two departments.Relevant information is presented below: Department 1 Department 2 Budgeted total assets \ 400,000 \ 500,000 Actual total assets \ 340,000 \ 450,000 Budgeted sales \ 400,000 \ 2,000,000 Actual sales \ 300,000 \ 2,100,000 Total company-wide advertising costs are $300,000.Assume the allocation base is changed from budgeted sales to actual sales.The amount of advertising costs allocated to Department 1 will ________.

Variable and fixed costs from service departments should be allocated separately to user departments.

Christina Company has two service departments,Maintenance and Human Resources.Christina Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year: Human Maintenlance Resources Mixing Finishing Direct costs \ 50,400 \ 33,600 \ 42,000 \ 70,000 Square footage 1,600 800 3,200 2,400 Number of employees 16 24 48 64 Assume the step-down method is used to allocate service department costs and the Human Resources Department is allocated first.Then the cost allocated from the Human Resources Department to the Maintenance Department is ________.

If the vast majority of costs were directly traceable to cost objects,then cost allocation would be a minor issue.

Assume the cost object is customers.Why should indirect costs associated with customers be allocated to customers instead of producing departments?

Companies routinely allocate joint product costs to products for purposes of ________.

Some service department activities support customers rather than the production process.These costs are traced directly to ________ instead of ________.

Garcia Company has two service departments,Maintenance and Human Resources.Garcia Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year: Human Maintenance Resources Mixing Finishing Direct costs \ 126,000 \ 84,000 \ 105,000 \ 175,000 Square footage 800 400 1,600 1,200 Number of employees 8 12 24 32 Assume the step-down method is used to allocate service department costs.Which department should be allocated first?

Adam Company has two service departments,Maintenance and Human Resources.Adam Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year: Human Maintenlance Resources Mixing Finishing Direct costs \ 50,400 \ 33,600 \ 42,000 \ 70,000 Square footage 1,600 800 3,200 2,400 Number of employees 16 24 48 64 Assume the step-down method is used to allocate service department costs and the Human Resources Department is allocated first.Then the amount of cost allocated from the Maintenance Department to the Human Resources Department is ________.

Smith Company has developed the following information about two products: Cost Per Unit Cost Per Unit Approach Product 1 Product 2 Traditional \ 5,400 \ 2,500 \ 6,000 \ 2,400 If managers believe the ABC approach is more accurate to cost products than the traditional approach,then ________.

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment.The cost object is the assembly department in a factory.

When using the step-down method of allocating service department costs,service departments provide support activities to ________.

Corless Company processes copper ore into two products,C and U.The ore costs $5 per pound and conversion costs are $15 per pound.Corless Company plans to produce 40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of ore.Product C sells for $30 per pound and Product U sells for $40 per pound.Assume the company uses the physical-units method of allocating joint costs.What amount of joint costs is allocated to Product C?

Evermore Company has two service departments,Maintenance and Cafeteria,as well as two production departments,Mixing and Finishing.Maintenance Department costs are allocated based on direct labor hours and Cafeteria Department costs are allocated based on number of employees.The following data are available: Maintenance Cafeteria Mixing Finishing Direct costs \ 7,000 \ 2,800 \ 1,200 \ 400 Direct labor hours 180 50 20 10 Number of employees 36 120 540 60 Assume the step-down method of allocating service departments' costs is used.Assume the Maintenance Department is allocated first. Required: A) Determine the total costs of the Mixing Department after allocating the service departments' costs. B) Determine the total costs of the Finishing Department after allocating the service departments' costs.

The Technical Services Department of Wichita State University leased a photocopy machine for $2,000 per month plus $0.04 per copy.Additional budgeted variable operating costs were $0.02 per copy.The Technical Services Department estimated the machine would produce 30,000 copies per month.The Accounting Department estimated is would make 6,000 copies per month but it actually made 4,000 copies.Assume fixed and variable cost pools are allocated separately.What is the amount of fixed cost allocated to the Accounting Department for the month?

The preferred cost driver for allocating central corporate support costs to products is either actual or estimated usage.