Exam 7: Allocating Costs of Support Departments and Joint Products

What is the most likely action to be taken by a company when a support department is NOT as cost effective as an outside source?

Describe the differences between support and producing departments. Give three examples of each.

The following information pertains to Famous Company: Famous Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine hours. Predetermined overhead rates for fabrication and assembly are based on direct labor hours. What is the amount of maintenance costs allocated to the Assembly Department using the direct method? (Round amounts to dollars.)

Support department __________ costs are allocated on the basis of original capacity.

McHugh Company allocates common Building Department costs to producing departments (P1 and P2) based on space occupied, and it allocates common Personnel Department costs based on the number of employees. Space occupancy and employee data are as follows: If McHugh Company uses the sequential allocation method and the support department with the highest percentage of interdepartmental services is allocated first, the ratio representing the portion of Personnel Department costs allocated to Department P2 is

The cost of crude oil used in producing gasoline products is an example of

Lennon Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $6,000 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $18,000 and $30,000, respectively. Data on standard service hours and number of employees are as follows: Predetermined overhead rates for Departments X and Y, respectively, are based on direct labor hours. What is the overhead rate for Department X assuming the direct method is used?

Joint costs are

Diane's Pottery Manufacturing Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $30,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: What are the total overhead costs associated with Department Y after allocating the Maintenance and Personnel Departments using the direct method?

Figure 7-6 Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: Refer to Figure 7-6. Using the direct method, the cost of the Personnel Department allocated to Department P1 is

Basic guidelines that should be followed when allocating support department costs include

The direct method is the most difficult way to allocate costs to the support departments.

Laredo Corporation, which manufactures products W, X, Y, and Z through a joint process costing $24,000, has the following data for 2014: What is the amount of joint costs assigned to product W using the physical units method?

The use of a multiple charging rate is needed, one for variable costs, and one for fixed costs.

Figure 7-7 Garden of Eden Company manufactures two products, Brights and Dulls, from a joint process. A production run costs $50,000 and results in 250 units of Brights and 1,000 units of Dulls. Both products must be processed past the split-off point, incurring separable costs for Brights of $60 per unit and $40 per unit for Dulls. The market price is $250 for Brights and $200 for Dulls. Refer to Figure 7-7. What is the gross profit for Brights assuming the net realizable value method is used?

Consequence Printing operates a Graphics business at two different locations. Consequence Printing has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each Graphics Center on the basis of total prints made.

The major objective(s) of allocations are

FIGURE 7-5 Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000. Normal and actual activity (brochures made) are as follows: Refer to Figure 7-5. Support department costs NOT allocated to the two brochure centers are

Which of the following would be the most appropriate base for allocating the costs of the housekeeping department?

Departmental overhead is applied to products passing through the department.