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Exam 7: Allocating Costs of Support Departments and Joint Products

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Question 31

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Why are joint costs allocated?

A) because of GAAP financial reporting requirements
B) because of local tax requirements
C) because of IMA requirements
D) because of CMA requirements

E) A) and C)
F) None of the above

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Question 32

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What is one of the potential advantages of allocating support departments to production departments?

A) Total costs would not be accumulated.
B) Managers may tend to overconsume these services.
C) This would encourage managers to monitor support department performance.
D) Managers will use a support service at a less efficient level.

E) B) and D)
F) A) and D)

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Question 33

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Which of the following methods allocates support department costs?

Which of the following methods allocates a joint cost such that each product has the same cost of goods sold percentage?

Which of the following allocation methods assumes "step-down" interdepartmental services?

Duff Company uses a job-order costing system to compute product costs.There are two producing departments (P1 and P2)and two support departments (S1 and S2).The costs incurred in S1 and S2 are allocated to Departments A and B and included in their factory overhead rates for costing products.S1 costs are allocated based on the number of employees,S2 costs are allocated based on direct labour hours,and the production departmental overhead rates are also based on direct labour hours.The following data are available for a recent period: $\begin{array}{|l|c|c|c|c|} \hline& \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\hline \text { Direct department costs } & \$ 12,000 & \$ 18,000 & \$ 70,000 & \$ 117,500 \\\hline \text { Number of employees } & 8 & 12 & 48 & 72 \\\hline \text { Direct labour hours } & 450 & 325 & 2,250 & 1,800\\\hline\end{array}$ a.Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method.The department with the greatest percentage of interdepartmental services should be allocated first. b.Determine the overhead rates per direct labour hour for P1 and P2. c.Job A2 was completed during the period at a cost of $26,000 for direct materials and direct labour costs.This job required 21 direct labour hours in Department P1 and 15 direct labour hours in Department P2.What was the total cost of Job A2?

Jacob Company has two support departments,Maintenance Department and Personnel Department,and two producing departments,X and Y.The Maintenance Department costs of $60,000 are allocated on the basis of standard service hours used.The Personnel Department costs of $9,000 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: $\begin{array} { l c c c c } & \text { Maint. } & \text { Person. } & \text { Dept. } & \text { Dept. } \\& \text { Dept. } & \text { Dept. } & \mathbf { x } & \mathbf { Y } \\ \text { Standard service hours used } & 100 & 50 & 300 & 150 \\\text { Number of empldyess }& 5 & 10 & 45 & 45 \\\text { Direct labour hours } & 50 & 50 & 250 & 250\end{array}$ Predetermined overhead rates for departments X and Y,respectively,are based on direct labour hours. - What is the overhead rate for Department Y assuming the direct method is used?

Dean Manufacturing Company has two support departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $90,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $13,500 are allocated on the basis of number of employees. The direct costs of departments X and Y are $27,000 and $45,000, respectively. Data on standard service hours and number of employees are as follows: $\begin{array}{lrrrr}&\text { Maint. } & \text { Person. } & \text { Dept. } & \text { Dept } \\& \underline{\text { Dept. }} & \underline{\text { Dept. }} & \underline{\mathrm{X}} & \underline{\mathrm{Y}}\\\text { Standard service hours used } & 200 & 150 & 1,200 & 600 \\\text { Number of employees } & 25 & 50 & 75 & 75 \\\text { Direct labour hours } & 250 & 250 & 1.000 & 500\end{array}$ Predetermined overhead rates for departments X and Y,respectively,are based on direct labour hours. -Refer to the figure.What is the overhead rate for Department X assuming the direct method is used?

Morris 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: $\begin{array}{lcccc} & \text { Maint. } & \text { Person. } & \text { Dept. } & \text { Dept } \\& \underline{\text { Dept. }} & \underline{\text { Dept. }} & \underline{\mathbf{X}} & \underline{\mathbf{Y}} \\\text { Standard service hours used } & 100 & 75 & 600 & 300 \\\text { Number of employees } & 50 & 100 & 150 & 150 \\\text { Dirert lahnur houre }& 125 & 125 & 500 & 250\end{array}$ - What are the total overhead costs associated with Department Y after allocating the Maintenance and Personnel Departments using the direct method?

Xi Print operates a copy business at two different locations. Xi Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy centre on the basis of total copies made. During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000. Normal and actual activity (copies made) are as follows: $\begin{array}{lll}&\text { Copy Centre } 1&\text { Copy Centre } 2\\\text { Normal activity (copies) } & 600,000 & 400,000 \\\text { Actual activity (copies) } & 500,000 & 440,000\end{array}$ -Refer to the figure.What support department costs are NOT allocated to the two copy centres?

Consider the following statement: Each product is assigned a weighting factor that is multiplied by the number of units.Joint cost is prorated to the products on the basis of each product's share of total weighted units.Which joint cost allocation method does the statement describe?

Suppose that a sawmill processes logs into four grades of lumber totalling 500,000 board metres as follows at a joint cost of $300,000: $\begin{array} { l c c } \text { Grade } & \text { Bard Metres } & \text { Final sales Value } \\\hline \text { First and second } & 75,000 & \$ 56,250 \\\mathrm { No. } \quad1 \mathrm { common } & 200,000 & 180,000 \\\mathrm { No.\quad2 } \mathrm { common } & 100,000 & 105,000 \\\mathrm { No. }\quad 3 \mathrm { common } & 125,000 & 127,500\end{array}$ What amount of joint costs will be allocated to first and second using the physical units method?

Lake Corporation manufactures two products,AA and BB,from a joint process.A production run costs $20,000 and results in 500 units of AA and 2,000 units of BB.Both products must be processed past the split-off point,incurring separable costs of $5 per unit for AA and $10 per unit for BB.The market price is $25 for AA and $20 for BB. a.Allocate joint production costs to each product using the physical units method. b.Allocate joint production costs to each product using the net realizable value method. c.Allocate joint production costs to each product using the constant gross margin percentage method.

Which of the following cost categories would most likely use machine hours as its activity driver?

Oaks 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: $\begin{array}{lrrr}&\text { MD}&\text { PD}&\text { P1}&\text { P2}\\\text { Standard service hours used } & 100 & 50 & 300 &150\\\text { Number of employees } & 10 & 20 & 90&90\\\\\text { Direst lahour houre }&50&50&250&250\end{array}$ -Refer to the figure.Using the direct method,what is the cost of the Maintenance Department allocated to Department P1?

What are joint costs?

The following information pertains to Utter Company: Utter 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 labour hours. - What is the amount of maintenance costs allocated to the Assembly Department using the direct method (rounded to the nearest dollar) ?

Which of the following is a basic guideline that should be followed when allocating support department costs?

Which of the following would generally be a by-product?

Deli Products produces two products,X and Y,in a single process.In the current year,the joint costs of this process were $25,000.In addition,4,000 units of X and 6,000 units of Y were produced.Separable processing costs beyond the split-off point were X-$10,000; Y-$20,000.X sells for $10.00 per unit; Y sells for $7.50 per unit. -What is the gross profit of product Y assuming the net realizable value method is used?