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Appendix A, Service Department...
1. In both the direct and step methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored.
2. The direct method has the disadvantage that it may leave some service department costs unallocated.
3. Under the direct method of allocating service department costs, reciprocal services provided among service departments are ignored.
4. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step method is used.
5. The step method requires establishing an order of allocation before service department costs can be allocated to operating departments.
6. The step method of allocating service department costs takes into account some, but not all, of the reciprocal services that service departments provide to each other.
7. The step method usually begins with the service department that provides the least amount of service to the other service departments.
8. The total amount of a service department's variable cost allocated to an operating department should usually be the same at the beginning and at the end of a period.
9. The total amount of a service department's fixed cost allocated to an operating department should usually be the same at the beginning and at the end of a period.
10. The fixed costs of service departments should be allocated to operating departments at the end of a period in proportion to the amount of capacity the service departments actually use during the period.
11. For performance evaluation purposes, actual service department costs instead of budgeted service department costs should be allocated to operating departments.
12. An allocation basis for service department costs should reflect how much cost the operating departments can bear. For this reason, a good allocation base is often the sales of the operating departments.
13. Services provided among service departments are known as non-value-added activities.
14. The reciprocal method of allocating service department costs is much simpler than the direct method and as a consequence is much more widely used.
15. All of a service department's actual costs should be allocated to operating departments to ensure that they are fully recovered.
16. Which of the following statements about reciprocal service department costs is correct?A) They are allocated to producing departments under the direct method but not allocated to producing
departments at all under the step method.B) They are allocated to producing departments under the step method but not allocated to producing
departments at all under the direct method.
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Appendix A, Service Department...
C) They are not allocated to producing departments under either the direct or the step methods.D) They are allocated to producing departments under both the direct and step methods.
17. Which of the following statements about the step method of allocating service department is correct?A) It is a less accurate method of allocation than the direct method.B) It cannot be used when a company has more than two service departments.C) It is a simpler allocation than the direct method.D) It ignores some interdepartmental services.
18. Grant Company has several service departments that provide services to each other as well as to producing departments within the company. Which method would be least accurate in allocating the company's service department costs?
A) Allocation by cost behaviour. C)
The step method.
B) The direct method. D)
The reciprocal method.
19. Variable service department costs should be allocated to operating departments at the end of the period according to which of the following formulas?
A) Budgeted rate multiplied by budgeted activity.B) Budgeted rate multiplied by actual activity.C) Actual rate multiplied by actual activity.D) Budgeted total cost multiplied by percentage of peak-period capacity required.
20. It would be best to allocate fixed service department costs to operating departments at the end of the period, according to which one of the following formulas?
A) Budgeted rate multiplied by budgeted activity.B) Budgeted rate multiplied by actual activity.C) Actual rate multiplied by actual activity.D) Budgeted total cost multiplied by percentage of peak-period capacity required.
21. Piedmont Company has one service department and three operating departments. During a particular year, a substantial variance developed between the actual costs and the budgeted costs of the service department. For performance evaluation purposes, what should be done with the variance?
A) Allocated to the operating departments on a basis of usage.B) Allocated to operating departments, but on some basis other than usage.C) Kept in the service department, and not charged to the operating departments at all.D) Allocated to top management at the head office.
22. Suppose a portion of the actual cost incurred by a service department is not allocated to other departments. What should be done with the unallocated cost at the end of the period?
A) Allocated equally among the other departments.B) Allocated among the other departments in proportion to budgeted activity.C) Treated as a variance of the service department.D) Treated as a variance of the other departments.
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23. The long-run average or peak-period needs of operating departments would be the most suitable base for allocating which of the following costs?
A) The variable element of power costs. C)
Total power costs.
B) The fixed element of power costs. D)
Costs unrelated to power.
24. What allocation method recognizes that service departments often provide each other with interdepartmental services, and it is therefore considered to be the most accurate method for allocating service department costs to operating departments?
A) The direct method. C)
The reciprocal method.
B) The step method. D)
The allocation by cost behaviour method.
25. Parker Company has two service departments—cafeteria and engineering—and two operating
departments. The number of employees in each department is given below:
Cafeteria 10Engineering 40
Operating Department 1 500Operating Department 2 200
The costs of the Cafeteria are allocated to other departments on the basis of the number of employees
in the departments. If these costs are budgeted at $69,375, what would be the amount of cost allocated
to Engineering under the direct method?A) $ 0. B) $ 3,700. C) $ 3,750. D) $17,344.
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Boa Corp. uses the direct method to allocate service department overhead costs to operating departments. Information for the month of June follows:
What would be the amount of maintenance department costs allocated to Operating Department A for June?
26. A) $ 8,000. B) $ 8,800. C) $10,000. D) $20,000.
27. Fairview Hospital has a Food Services Department that provides food for patients in all other departments of the hospital. For May, variable food costs were budgeted at $3 per meal, based on 15,000 meals served during the month. At the end of the month, it was determined that 16,000 meals had been served at a total cost of $54,000. For performance evaluation purposes, how much food cost should be charged to other departments at the end of the month?A) $45,000. B) $48,000. C) $50,625 D) $51,200.
28. Swift Company has a Maintenance Department that does maintenance work on all equipment in Operating Departments A and B. The Maintenance Department budgeted variable maintenance costs of $0.20 per machine hour for June. Actual total variable maintenance costs for the month were $15,000. Budgeted and actual machine hours in the operating departments for the month were:
Department A Department BBudgeted Machine Hours 22,000Actual Machine Hours Worked 30,000
For performance evaluation purposes, how much variable maintenance cost for the month should be charged to Department A at the end of the month?
A) $ 6,000. B) $ 8,250. C) $ 9,000. D) $15,000.
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29. Wilson Company maintains a cafeteria for its employees. For June, variable food costs were budgeted at $45 per employee based on a budgeted level of 200 employees in other departments. During the month, an average of 190 employees worked in other departments, and actual total food costs were $9,250. For performance evaluation purposes, how much food cost should be charged to other departments at the end of the month?A) $8,550. B) $9,000. C) $9,250. D) $9,737.
30. The Medical Services Department of Carey Company budgeted $20 of variable medical expenses per employee for May, based on 1,000 employees in operating departments. During May, an average of 1,050 employees were employed in operating departments. Actual total variable medical expenses were $23,100 for the month. For performance evaluation purposes, how much variable medical expenses should be charged to operating departments at the end of May?A) $20,000. B) $21,000. C) $22,000. D) $23,100.
31. The fixed costs of Baxter Company's Personnel Department are allocated to Operating Departments on the basis of direct labour hours. The following data have been provided:
Operating Department X
Direct Labour Hours - Long-Run Average
15,000
Direct Labour Hours - Actual 10,000
The fixed costs of the Personnel Department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. For performance evaluation purposes, how much of this fixed cost should be allocated to Operating Department X at the end of the year?
A) $22,400. B) $33,600. C) $35,000. D) $52,500.
Use the following to answer questions 32-35:
Westmore Company has two Service Departments and two Operating Departments. Budgeted costs and other data relating to these departments are presented below:
Building
Operating Department
& Groun
ds
Personnel
A B
Departmental Costs
$54,000
$200,000
$650,000
$800,000
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Square Metres Occupied
1,000 3,000 12,000 15,000
Number of Employees
10 5 45 55
Direct Labour Hours 76,000 92,000
The costs of Building & Grounds are allocated first on the basis of square metres of space occupied. Personnel costs are allocated on the basis of number of employees. The departmental costs for the Operating Departments are overhead costs. Predetermined overhead rates in the Operating Departments are calculated on the basis of direct labour hours.
32. Assume that the company uses the direct method of allocating Service Department costs to Operating Departments. How much Building & Grounds cost would be allocated to Operating Department A?A) $20,903. B) $21,600. C) $24,000. D) $29,700.
33. Assume that the company uses the direct method of allocating Service Department costs. The predetermined overhead rate that would be used in Operating Department B would be closest to which of the following?A) $10.00/DLH. B) $10.22/DLH. C) $11.50/DLH. D) $12.00/DLH.
34. Assume that the company uses the step method of allocating Service Department costs to Operating Departments, and Building and Grounds costs are allocated first. How much Personnel Department cost would be allocated to Operating Department B?A) $ 0. B) $107,368. C) $107,590. D) $112,970.
35. Assume again that the company uses the step method. What would be the total amount of cost allocated from the two Service Departments to the Operating Departments for the year?A) $ 254,000. B) $ 850,000. C) $1,450,000. D) $1,704,000.
Use the following to answer questions 36-40:
Russet Company has two Service Departments and two Producing Departments. Budgeted costs and budgeted activity in the various departments for the most recent year are presented below:
Custodial Cutting AssemblyServices Cafeteria Department Department
Overhead Costs $252,000 $140,000 $600,000 $900,000Square Metres of Space Occupied 1,000 2,000 8,000 10,000Number of Employees 20 30 150 200Machine Hour 40,000 60,000
Service Department costs are allocated to Producing Departments with the costs of Custodial Services allocated first on the basis of square metres of space occupied. The costs of the Cafeteria are allocated on the basis of number of employees. Predetermined overhead rates in the Cutting and Assembly departments are based on
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Appendix A, Service Department...
machine hours. Round all calculations to the nearest dollar.
36. Under the direct method of allocation, what would be the amount of Custodial Services cost allocated to the Cutting Department?A) $ 0. B) $ 96,000. C) $100,800. D) $112,000.
37. Under the direct method of allocation, what would be the predetermined overhead rate for the year in the Assembly Department?A) $ 3.17. B) $ 3.67. C) $18.17. D) $18.67.
38. Under the step method of allocation, what would be the amount of Custodial Services cost allocated to the Assembly Department?A) $ 0. B) $120,000. C) $126,000. D) $140,000.
39. Under the step method of allocation, what would be the amount of cost allocated from the Cafeteria to the Cutting Department?A) $ 0. B) $60,000. C) $61,500. D) $70,800.
40. Under the step method of allocation, what would be the amount of cost allocated from the Cafeteria to Custodial Services?A) $ 0. B) $7,000. C) $7,568. D) $8,260.
Use the following to answer questions 41-42:
The James Company has four departments with data as follows:
Service Departments Operating DepartmentsCafeteria Maintenance Milling Finishing
Budgeted Costs $12,000 $10,000 $42,000 $38,000Number of Employees 12 10 84 66Labour Hours 1,500 1,250 5,250 4,750
41. Suppose Maintenance Department costs are allocated on the basis of labour hours. What would be the amount of cost allocated to Milling from Maintenance under the direct method?A) $5,250. B) $5,600. C) $5,700. D) $6,720.
42. Suppose Cafeteria Department costs are allocated on the basis of number of employees and that the step method is used with costs of the Cafeteria Department allocated first. What would be the amount of cost allocated from the Cafeteria Department to Maintenance Department?A) $ 0. B) $625. C) $698. D) $750.
Use the following to answer questions 43-44:
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Appendix A, Service Department...
Anderson Company has two Service Departments and two Producing Departments. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows:
EmployeesPersonnel Department 30Engineering Department 90Producing Department No. 1 590Producing Department No. 2 290Total Employees 1,000
43. Total costs in the Personnel Department are $900,000 per year. Under the step method, the costs of the Personnel Department are allocated before the costs of the Engineering Department are allocated. What would be the amount of this cost allocated to the Engineering Department under the step method, rounded to the nearest dollar?A) $ 0. B) $81,000. C) $83,505. D) $92,046.
44. What would be the amount of Personnel Department cost that would be allocated to Producing Department 2 under the direct method?A) $ 0. B) $261,000. C) $269,072. D) $296,591.
Use the following to answer questions 45-48:
The Toville City Hospital has two Service Departments: Energy and Housekeeping. These two departments provide services to the three Operating Departments: Pediatrics, Surgery, and Health Care. The fixed costs of the Energy Department are allocated on the basis of kilowatt hours (KWH), and the fixed costs of the Housekeeping Department are allocated on the basis of square metres of space occupied. Data for August are as follows:
Energy Housekeeping Pediatrics Surgery Health CareBudgeted Fixed Costs
$160,000 $200,000 -- -- --
Actual Fixed Costs $162,000 $207,000 -- -- --Square Metres 5,000 5,000 20,000 10,000 70,000Long-Run Average KWH
2,000 36,000 90,000 90,000 144,000
Actual KWH Used 2,000 30,000 75,000 60,000 135,000
The hospital allocates Service Department costs by the step method, starting with the Energy Department. The Energy Department's budgeted fixed costs are determined by the long-run average KWH requirements.
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Appendix A, Service Department...
45. What would be the amount of fixed cost allocated from Housekeeping to Pediatrics for August?A) $ 40,500. B) $ 43,200. C) $ 44,640. D) $200,000.
46. What would be the amount of fixed cost allocated from Energy to Surgery for August?A) $38,900. B) $40,000. C) $40,500. D) $42,000.
47. What would be the amount of fixed cost allocated from Housekeeping to Surgery for August?A) $21,600. B) $22,320. C) $25,180. D) $35,980.
48. What would be the total amount of fixed cost allocated to Health Care from all Service Departments for August?A) $ 61,600. B) $175,800. C) $215,200. D) $221,040.
Use the following to answer questions 49-52:
The Mohawk-Hudson Company is an electric utility which has two Service Departments: Accounting and Maintenance. It has two Operating Departments: Generation and Transmission. The company does not distinguish between fixed and variable Service Department costs. Maintenance Department costs are allocated on the basis of maintenance hours of service. Accounting Department costs are allocated to Operating Departments on the basis of accounting hours of service provided. Budgeted costs and other data for the coming year are as follows:
Accounting Maintenance Generation TransmissionBudgeted Costs $100,000 $200,000 $600,000 $400,000Maintenance Hours of Service
-- 600 7,200 4,800
Accounting Hours of Service 500 2,000 4,500 3,500
The step method is used to allocate Service Department costs, with the Accounting Department being allocated first.
49. What would be the amount of Accounting Department costs allocated to the Maintenance Department?A) $ 0. B) $18,000. C) $19,048. D) $20,000.
50. What would be the amount of Accounting Department costs allocated to the Generation Department?A) $38,000. B) $45,000. C) $42,857. D) $57,143.
51. What would be the amount of Maintenance Department cost allocated to the Accounting Department?A) $ 0. B) $69,315. C) $75,000. D) $88,000.
52. What would be the amount of Maintenance Department cost allocated to the Generation Department?
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A) $123,750. B) $132,000. C) $140,000. D) $150,685.
Use the following to answer questions 53-55:
Lakeside Nursing Home has two Operating Departments: Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two Operating Departments. The costs of the Housekeeping Department are all variable and are allocated to the Operating Departments on the basis of labour hours. Data for September follow:
Custodial Care RehabilitationBudgeted Labour Hours 3,000 1,000Actual Labour Hours 3,200 1,600
The budgeted costs of the Housekeeping Department for September were $24,000, and the actual costs were $29,760.
53. For flexible budget planning purposes, how much Housekeeping Department cost should be allocated to Custodial Care at the start of September?A) $ 6,000. B) $ 8,000. C) $16,000. D) $18,000.
54. For performance evaluation purposes, how much Housekeeping Department cost should be charged to Rehabilitation at the end of September?A) $ 7,440. B) $ 9,600. C) $ 9,920. D) $19,840.
55. For performance evaluation purposes, how much of the actual Housekeeping Department costs for September should NOT be charged to the operating departments?A) $ 0. B) $ 960. C) $1,240. D) $5,760
Use the following to answer questions 56-58:
Community General Hospital has a Food Services Department that provides meals for all patients in the hospital. Budgeted and actual meals served for the month just ended are:
Meals Served Budgeted Actual
Pediatrics Department 30,000 24,000Surgical Department 50,000 76,000Total Meals 80,000 100,000
The budgeted variable cost of meals for the month just ended was $100,000; the actual variable cost of meals for the month was $130,000.
56. For planning purposes, how much Food Services variable cost should be allocated to the Pediatrics Department at the beginning of the current year?A) $ 0. B) $37,500. C) $39,000. D) $48,750.
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57. How much of the $130,000 actual Food Services variable cost should be allocated to the Surgical Department at the end of the month just completed?A) $62,500. B) $65,000. C) $95,000. D) $98,800.
58. How much of the $130,000 actual Food Services cost for the month just completed should be kept in the Food Services Department and NOT allocated to the other departments?A) $ 0. B) $ 4,000. C) $ 5,000. D) $30,000.
Use the following to answer questions 59-61:
Nathan Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly departments. Cost of the Equipment Services Department are allocated to the Fabrication and Assembly departments on the basis of direct labour hours. Data for the year just completed follow:
Fabrication Assembly TotalBudgeted Direct Labour Hours 20,000 60,000 80,000Actual Direct Labour Hours 30,000 70,000 100,000Peak-Period Direct Labour Hours
40,000 80,000 120,000
For the year just ended, the company budgeted its variable maintenance costs at $200,000 for the year. Actual total variable maintenance costs for the year were $275,000.
59. How much of the $200,000 of budgeted variable maintenance cost was allocated to the Fabrication Department at the BEGINNING of the year just completed?A) $ 50,000. B) $ 60,000. C) $ 66,667. D) $100,000.
60. For purposes of measuring performance, how much of the $275,000 of actual variable maintenance cost should be allocated to the Assembly Department at the END of the year just ended?A) $116,900. B) $150,000. C) $175,000. D) $192,500.
61. How much (if any) of the $275,000 in variable maintenance cost should NOT be allocated to the Fabrication and Assembly departments?A) $ 0. B) $ 25,000. C) $ 75,000. D) $108,000.
Use the following to answer questions 62-64:
The total fixed costs budgeted for Caterton's Maintenance Department for last year were $280,000; total actual fixed costs for the year were $308,000. The level of budgeted fixed costs is determined by peak-period requirements. The Milling Department requires 15/35 of the peak-period capacity, and the Assembly Department requires 20/35.
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62. For flexible budget planning purposes, how much fixed maintenance cost should be allocated to the Milling Department at the BEGINNING of the year?A) $120,000. B) $132,000. C) $140,000. D) $145,600
63. For purposes of measuring performance, how much fixed maintenance cost should be charged to the Assembly Department at the END of the year?A) $147,800. B) $160,000. C) $173,500. D) $176,000.
64. For performance evaluation purposes, how much of the actual fixed maintenance cost for the year should be kept in the Maintenance Department and NOT charged to the other departments?A) $ 0. B) $ 28,000. C) $280,000. D) $308,000.
Use the following to answer questions 65-67:
Mueller Industries has a Maintenance Department that services the company's Milling and Assembly departments. Fixed costs of the Maintenance Department are allocated to these departments on the basis of peak-period machine hour. Data on machine hours for the year just ended follow:
Milling Assembly TotalBudgeted Machine Hours 60,000 140,000 200,000Actual Machine Hours 50,000 200,000 250,000Peak-Period Machine Hours 100,000 200,000 300,000
The total fixed costs budgeted for the Maintenance Department for the year just ended were $500,000; total actual fixed costs for the year were $530,000.
65. For planning purposes, how much of the $500,000 in budgeted fixed costs, rounded to the nearest dollar, should be allocated to the Milling Department at the BEGINNING of the year?A) $ 83,333. B) $100,000. C) $166,667. D) $250,000.
66. For purposes of measuring performance, how much of the $530,000 in actual fixed costs, rounded to the nearest dollar, should be allocated to the Assembly Department at the END of the year?A) $333,333. B) $353,333. C) $371,000. D) $424,000.
67. How much of the $530,000 in actual fixed cost for the year, rounded to the nearest dollar, should be kept in the Maintenance Department and not allocated to the other departments?A) $ 0. B) $30,000. C) $88,333. D) $95,000.
Use the following to answer questions 68-69:
The Sherman Company manufactures and sells rowboats and canoes. The company has two Operating Departments: Carpentry and Finishing. The company also has a Maintenance Department that serves both Operating Departments. The costs in the Maintenance Department are budgeted at $120,000 per month plus $0.25 per labour hour. The budgeted fixed costs are determined by the peak-period requirements. The Carpentry
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Department requires 62.5% of the peak-period capacity, and the Finishing Department requires 37.5%. For May, Carpentry has estimated that it will operate 100,000 labour hours, and Finishing has estimated that it will operate 80,000 labour hours.
68. For flexible budget planning purposes, how much Maintenance Department cost should be allocated to Carpentry at the beginning of May?A) $ 74,537. B) $ 92,400. C) $100,000. D) $112,500.
69. For flexible budget planning purposes, how much Maintenance Department cost should be allocated to Finishing at the beginning of May?A) $65,000. B) $65,400. C) $67,500. D) $70,000.
Use the following to answer questions 70-75:
X Company has two Service Departments—S1 and S2—and two Production Departments—P1 and P2. Direct costs for each department and the proportion of service costs used by the various departments for the month of September are as follows:
Proportion of Services Used byS1 S2 P1 P2
Departments:S1 - 0.20 0.60 0.20S2 0.50 - 0.10 0.40Direct Costs $80,000 $100,000 $160,000 $140,000
X Company's management accountant has formulated the following two equations as the first step in using the reciprocal method to allocate the costs of the two Service Departments:
S1 = $80,000 + 0.50 x S2S2 = $100,000 + 0.20 x S1
Round all calculations to the nearest dollar in answering the related questions.
70. What is the value of S1 in the two equations?A) $ 80,000. B) $128,889. C) $130,000. D) $144,444.
71. What is the value of S2 in the two equations?A) $100,000. B) $128,889. C) $140,000. D) $144,444.
72. What is the amount of the total cost of Service Department S1 that should be allocated to Service Department S2?A) $ 0. B) $16,000. C) $28,889. D) $64,444.
73. What is the amount of the total cost of Service Department S2 that should be allocated to Service Department S1?
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Appendix A, Service Department...
A) $ 0. B) $28.889. C) $50,000. D) $64,444.
74. What is the total cost of Production Department P1 after allocation of the total costs of Service Departments S1 and S2?A) $160,000. B) $218,000. C) $259,556. D) Cannot be determined with the information provided.
75. What is the total cost of Production Department P2 after allocation of the total costs of Service Departments S1 and S2?A) $140,000. B) $196,000. C) $220,444. D) Cannot be determined with the information provided.
76. Central Medical Clinic has two Service Departments—Building Services and Energy—and three Operating Departments—Pediatrics, Geriatrics, and Surgery. Central allocates the cost of Building Services on the basis of square metres and Energy on the basis of patient days. No distinction is made between variable and fixed costs. Budgeted operating data for the year just completed follow:
Required:a) Prepare a schedule to allocate Service Department costs to Operating Departments by the direct method, rounding all dollar amounts to the nearest whole dollar.b) Prepare a schedule to allocate Service Department costs to Operating Departments by the step method, allocating Building Services first, and rounding all amounts to the nearest whole dollar.
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Appendix A, Service Department...
77. Delta Manufacturing Company has two Service Departments—Custodial Services and Maintenance—and three Production Departments—Cutting, Milling, and Assembly. Delta allocates the cost of Custodial Services on the basis of square metres and Maintenance on the basis of labour hours. No distinction is made between variable and fixed costs. Budgeted operating data for the year just completed follow:
Required:a) Prepare a schedule to allocate Service Department costs to the Production Departments by the direct method, rounding all dollar amounts to the nearest whole dollar.b) Prepare a schedule to allocate Service Department costs to the Production Departments by the step method, allocating Custodial Services first, and rounding all amounts to the nearest whole dollar.
78. Flinders Company has two Service Departments—Factory Administration and Maintenance—and two Operating Departments. Selected information relating to these departments is given below:
The company allocates Service Department costs by the step method. Factory Administration costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labour hours.
Required:Prepare a schedule showing the allocation of Service Department costs to other departments.
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Appendix A, Service Department...
79. Hancock Company has two Service Departments—Factory Administration and Maintenance—and two Producing Departments. Selected information relating to these departments follow:
The company allocates Service Department costs using the step method. Costs of Factory Administration are allocated on the basis of the number of employees. Costs of Maintenance are allocated on the basis of labour hours. Allocation begins with the Factory Administration Department.
Required:Prepare a schedule showing the allocation of Service Department costs to the other departments.
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80. Leslie Company operates a cafeteria for the benefit of its employees. The company subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows:
Budgeted ActualVariable Costs $500,000 $436,000Fixed Costs $340,000 $352,000
The variable costs are after deducting budgeted or actual amounts to be recovered or recovered from employees.
Costs of the cafeteria are allocated to Producing Departments on the basis of the number of employees in these departments. Fixed costs are allocated on the basis of the peak-period number of employees. Data on employees in the company's Producing Departments follows:
Required:a) Calculate the dollar amount of variable and fixed costs that should be allocated to each of the Producing Departments at the beginning of the year for planning purposes.b) Calculate the dollar amount of variable and fixed costs that should be allocated to each of the Producing Departments at the end of the year for purposes of evaluating performance. Identify the amount, if any, of actual costs that should NOT be allocated to the Operating Departments.
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81. Standard Company operates a daycare centre for the benefit of its employees. The company subsidizes the daycare centre heavily. Budgeted and actual costs for the daycare centre for the year just completed are as follows:
Budgeted ActualVariable Costs* $700,000 $740,000Fixed Costs $420,000 $440,000
* Unrecovered cost after deducting amounts received from employees
Costs of the daycare centre are allocated to Operating Departments on the basis of the number of employees in these departments. Fixed costs of the daycare centre are allocated on the basis of the peak-period number of employees. Data on employees in the company's Operating Departments follow:
Required:a) Calculate the dollar amount of variable and fixed costs that should be allocated to each of the Operating Departments at the beginning of the year for planning purposes.b) Calculate the dollar amount of variable and fixed costs that should be allocated to each of the Operating Departments at the end of the year for purposes of evaluating performance. Identify the amount, if any, of actual costs that should NOT be allocated to the Operating Departments.
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82. Gabritz, Inc. has a Maintenance Department that provides services to the company's two Operating Departments. The variable costs of the Maintenance Department are allocated on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $7.50 per maintenance hour, and actual variable maintenance costs were $7.80 per maintenance hour.
The budgeted and actual maintenance hours for each Operating Department for last year appear below:
Operating DepartmentsA
Budgeted Maintenance Hours 3,000Actual Maintenance Hours 3,100
Required:a) Calculate the amount of variable Maintenance Department cost that should have been allocated to each Operating Department at the beginning of the year for flexible budget planning purposes.b) Calculate the amount of variable Maintenance Department cost that should have been charged to each Operating Department at the end of the year for performance evaluation purposes.c) Calculate the amount of actual variable Maintenance Department cost that should NOT have been charged to the Operating Departments at the end of the year for performance evaluation purposes.
83. Smurnov Company has a Purchasing Department that provides services to two factories in Texas. One is located in Austin and the other in Belmont. Budgeted costs for the Purchasing Department consist of $91,000 per year of fixed costs and $7 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Austin factory requires 3/7 of the peak-period capacity, and the Belmont factory requires 4/7.
During the coming year, 2,700 purchase orders are budgeted for the Austin factory and 3,900 purchase orders for the Belmont factory.
Required:Calculate the amount of Purchasing Department cost that should be allocated to each factory at the beginning of the period for flexible budget planning purposes. (The company allocates fixed and variable costs separately.)
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84. Warehouse Services is a Service Department in the Werner Company, providing storage service to three Operating Departments. The company allocates the costs of this department to Operating Departments on the basis of cubic metres occupied.
Last year, Warehouse Services budgeted variable storage costs of $0.15 per cubic metre occupied, and fixed costs of $120,000. Actual storage space occupied during the year, along with long-term storage needs of Operating Departments, is given below:
Actual variable storage costs amounted to $0.16 per cubic metre occupied. Actual fixed storage costs were $123,000.
Required:a) Calculate the amount of variable storage cost that should be charged to each Operating Department at the end of the year for performance evaluation purposes.b) Calculate the amount of fixed storage cost that should be charged to each Operating Department at the end of the year for performance evaluation purposes.
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Answer Key
1. TrueDifficulty: Medium
2. FalseDifficulty: Medium
3. TrueDifficulty: Easy
4. FalseDifficulty: Medium
True5.Difficulty: Medium
6. TrueDifficulty: Easy
7. FalseDifficulty: Medium
8. FalseDifficulty: Medium
9. TrueDifficulty: Medium
10. FalseDifficulty: Medium
11. FalseDifficulty: Medium
12. FalseDifficulty: Easy
13. FalseDifficulty: Medium
14. FalseDifficulty: Easy
15. FalseDifficulty: Medium
16. DDifficulty: Medium
17. DDifficulty: Medium
18. BDifficulty: Easy
19. BDifficulty: Medium
20. DDifficulty: Medium
21. CDifficulty: Medium
22. CDifficulty: Medium
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23. BDifficulty: Medium
24. CDifficulty: EasyType: CMA adapted
25. ADifficulty: Medium
26. CDifficulty: Medium
27. BDifficulty: Medium
28. ADifficulty: Medium
29. ADifficulty: Medium
30. BDifficulty: Medium
31. BDifficulty: Medium
32. CDifficulty: Medium
33. BDifficulty: Medium
34. DDifficulty: Medium
35. ADifficulty: Medium
36. DDifficulty: Medium
37. DDifficulty: Hard
38. CDifficulty: Medium
39. DDifficulty: Medium
40. ADifficulty: Medium
41. ADifficulty: Medium
42. DDifficulty: Medium
43. CDifficulty: Medium
44. DDifficulty: Medium
45. B
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Difficulty: Medium46. B
Difficulty: Medium47. A
Difficulty: Medium48. C
Difficulty: Medium49. D
Difficulty: Medium50. B
Difficulty: Medium51. A
Difficulty: Medium52. B
Difficulty: Medium53. D
Difficulty: Medium54. B
Difficulty: Medium55. B
Difficulty: Hard56. B
Difficulty: Medium57. C
Difficulty: Medium58. C
Difficulty: Medium59. A
Difficulty: Medium60. C
Difficulty: Medium61. B
Difficulty: Medium62. A
Difficulty: Easy63. B
Difficulty: Medium64. B
Difficulty: Hard65. C
Difficulty: Medium66. A
Difficulty: Medium67. B
Difficulty: Medium68. C
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Difficulty: Medium69. A
Difficulty: Medium70. D
Difficulty: Hard71. B
Difficulty: Hard72. C
Difficulty: Hard73. D
Difficulty: Hard74. C
Difficulty: Hard75. C
Difficulty: Hard
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76. a)Direct method:
b)Step method:
Difficulty: Medium
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77. a)Direct method:
b)Step method:
Difficulty: Hard
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78.
Difficulty: Medium79.
Difficulty: Medium
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80. a) Budgeted variable rate:$500,000 / 800 employees = $625 per employeeFixed costs are allocated on the basis of peak-period number of employees: Machining, 40%; Assembly, 60%
b) Variable costs are allocated at the budgeted rate of $625 per employee. Fixed costs are allocated in the same predetermined lump-sum amounts as at the beginning of the year.
The remaining amounts of variable and fixed costs are variances that should not be allocated:
Difficulty: Medium
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81. a) Budgeted variable rate:$700,000 / 1,000 employees = $700 per employeeFixed costs are allocated on a basis of peak-period number of employees: Cutting, 25%; Assembly, 25%; Packaging, 50%
b) Variable costs are allocated at the budgeted rate of $700 per employee. Fixed costs are allocated in the same predetermined lump-sum amounts as at the beginning of the year.
The remaining amounts of variable and fixed costs are variances that should not be allocated:
Difficulty: Medium
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82.
Difficulty: Medium83.
Difficulty: Medium84. a)
Dept X: 160,000 x $0.15 = $24,000Dept Y: 590,000 x $0.15 = $88,500Dept Z: 750,000 x $0.15 = $112,500
b)Dept X: (200 / 1600) x $120,000 = $15,000Dept Y: (600 / 1600) x $120,000 = $45,000Dept Z: (800 / 1600) x $120,000 = $60,000Difficulty: Medium
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