Deck 17: Allocation of Support Activity Costs and Joint Costs

Question 1

The direct method ignores the fact that some service departments provide service to other service departments.

Answer 1

True

Question 2

The Metropolitan Clinic has two service departments (S1 and S2)and two "production" departments (P1 and P2).The service departments service the "production" departments as well as each other,and studies have shown that S2 provides the greater amount of service.Which of the following choices correctly denotes an allocation that would not occur under (1)the direct method and (2)the step-down method of cost allocation?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Answer 2

E

Question 3

Consider the following statements about service department costs:
I)The costs of the Human Resources Department in a manufacturing organization must be allocated to production departments in order to achieve a correct costing of inventory.
II)The allocation of service department costs requires that an organization select both an allocation base and an allocation method.
III)Service department cost allocations are more relevant for firms involved in service industries (e.g. ,repair,health care)than for those involved with manufacturing.
Which of the above statements is (are)correct?

A)I only.
B)II only.
C)I and II.
D)II and III.
E)I,II,and III.

Answer 3

C

Question 4

When the step-down method is used,the service department whose costs are allocated first is often the department that:

A)obtains the highest yield.
B)has the lowest cost.
C)is the newest.
D)serves the greatest number of other service departments.
E)serves the fewest other service departments.

Question 5

Which of the following methods fully recognizes the fact that some service departments provide service to other service departments?

A)Direct method.
B)Indirect method.
C)Step-down method.
D)Reciprocal methoD.
E)Dual-cost allocation method.

Question 6

The Hearts and Hands Clinic has two service departments (Human Resources and Information Systems)and two "production" departments (In-patient Treatment and Out-patient Treatment).The service departments service the "production" departments as well as each other,and studies have shown that Information Systems provides the greater amount of service.Which of the following allocations would not occur if Hearts uses the step-down method of cost allocation?

A)Information Systems cost would be allocated to Human Resources.
B)Human Resources cost would be allocated to Information Systems.
C)Human Resources cost would be allocated to In-patient Treatment.
D)In-patient Treatment cost would be allocated to Out-patient Treatment.
E)Allocations "B" and "D" abovE.

Question 7

Which of the following methods recognizes some (but not all)of the services that occur between service departments?

A)Direct method.
B)Step-down method.
C)Indirect method.
D)Reciprocal methoD.
E)Dual-cost allocation method.

Question 8

Which of the following methods recognizes the fact that fixed and variable service department costs should be allocated separately?

A)Direct method.
B)Indirect method.
C)Step-down method.
D)Reciprocal methoD.
E)Dual-cost allocation method.

Question 9

Which of the following would be considered a service department for an airline?

A)Maintenance.
B)Information Systems.
C)Purchasing.
D)Flight Catering.
E)All of thesE.

Question 10

Consider the following statements about the direct method of service department cost allocation:
I)Under the direct method,all service department costs are eventually allocated to production departments.
II)The order in which service department costs are allocated to production departments is important.
III)Once a service department's costs have been allocated,no costs are re-circulated back to that department.
Which of the above statements is (are)correct?

A)I only.
B)II only.
C)I and II.
D)I and III.
E)I,II,and III.

Question 11

Which of the following methods ignores the fact that some service departments provide service to other service departments?

A)Direct method.
B)Indirect method.
C)Step-down method.
D)Reciprocal methoD.
E)Dual-cost allocation method.

Question 12

A company that uses activity-based costing would likely allocate costs from activity-cost pools to products and services.

Question 13

When allocating service department costs,companies should use actual costs rather than budgeted costs,and separate rates for variable and fixed costs.

Question 14

Consider the following statements about the step-down method of service department cost allocation:
I)Under the step-down method,all service department costs are eventually allocated to production departments.
II)The order in which service department costs are allocated is important.
III)After a service department's costs have been allocated to other departments,no costs are re-circulated back to that service department.
Which of the above statements is (are)correct?

A)I only.
B)II only.
C)I and II.
D)I and III.
E)I,II,and III.

Question 15

Which of the following would not be considered a service department in a hospital?

A)Security.
B)Cardiac Care.
C)Patient Records.
D)Accounting.
E)Human Resources.

Question 16

Eastside Hospital has two service departments (Patient Records and Accounting)and two "production" departments (Internal Medicine and Surgery).It uses the reciprocal-services method of cost allocation and should allocate Internal Medicine cost to Surgery.

Question 17

The Gross Margin at Split-Off method should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product.

Question 18

Dunwoody Corporation has two service departments (Maintenance and Human Resources)and three production departments (Machining,Assembly,and Finishing).The two service departments service the production departments as well as each other,and studies have shown that Maintenance provides the greater amount of service.On the basis of this information,which of the following cost allocations would likely occur under the step-down method?

A)Machining cost would be allocated to Assembly.
B)Maintenance cost would be allocated to Finishing.
C)Maintenance cost would be allocated to Human Resources.
D)Human Resources cost would be allocated to Maintenance.
E)Allocations "B" and "C" abovE.

Question 19

The Montrose Clinic has two service departments (Human Resources and Information Resources)and two "production" departments (In-patient Treatment and Out-patient Treatment).The service departments service the "production" departments as well as each other,and studies have shown that Information Resources provides the greater amount of service.Which of the following allocations would occur if Montrose uses the direct method of cost allocation?

A)Information Resources cost would be allocated to In-patient Treatment.
B)Information Resources cost would be allocated to Human Resources.
C)Human Resources cost would be allocated to Information Resources.
D)In-patient Treatment cost would be allocated to Out-patient Treatment.
E)Out-patient Treatment cost would be allocated to Information Resources.

Question 20

Trackings Corporation has two service departments (Maintenance and Human Resources)and three production departments (Machining,Assembly,and Finishing).Maintenance is the larger service department and Assembly is the largest production department.The two service departments service each other as well as the three producing departments.On the basis of this information,which of the following cost allocations would not occur under the direct method?

A)Machining cost would be allocated to Assembly.
B)Maintenance cost would be allocated to Finishing.
C)Maintenance cost would be allocated to Human Resources.
D)Human Resources cost would be allocated to Finishing.
E)Allocations "A" and "C" would not occur.

Question 21

Assuming use of the direct method,over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)?

A)18,000.
B)48,000.
C)55,000.
D)66,000.
E)More information is needed to judgE.

Question 22

Assuming use of the step-down method,over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)?

A)18,000.
B)48,000.
C)55,000.
D)66,000.
E)More information is needed to judgE.

Question 23

Using the direct method,the amount of Janitorial Department cost allocated to Sales Department no.2 is:

A)$8,571.
B)$8,654.
C)$9,000.
D)$10,350.
E)$14,210.

Question 24

Assuming use of the step-down method,over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)?

A)19,000.
B)44,000.
C)50,000.
D)63,000.
E)More information is needed to judgE.

Question 25

Assuming use of the direct method,over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)?

A)19,000.
B)44,000.
C)50,000.
D)63,000.
E)More information is needed to judgE.

Question 26

Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees.Human Resources cost amounts to $1,200,000,and the department provides more service to the firm than Cafeteria.How much Human Resources cost would be allocated to Cafeteria?

A)$88,888.
B)$28,572.
C)$44,444.
D)$0.
E)Some other amount.

Question 27

Using the direct method,the amount of Janitorial Department cost allocated to the Finishing Department is:

A)$21,053.
B)$24,843.
C)$25,000.
D)$28,947.
E)$34,157.

Question 28

Ricardo Corporation has two service departments (Maintenance and Human Resources)and three production departments (Machining,Assembly,and Finishing).The two service departments service each other,and studies have shown that Maintenance provides the greater amount of service.Given the various cost allocation methods,which of the following choices correctly denotes whether Maintenance cost would be allocated to Human Resources?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 29

Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees.Human Resources cost amounts to $1,200,000,and the department provides more service to the firm than Cafeteria.How much Human Resources cost would be allocated to Machining?

A)$0.
B)$428,572.
C)$444,444.
D)$480,000.
E)Some other amount.

Question 30

Using the step-down method and assuming the Human Resources Department is allocated first,the amount of Janitorial cost allocated to Sales Department no.2 is:

A)$8,571.
B)$9,000.
C)$9,857.
D)$10,247.
E)$10,350.

Question 31

Visions,Inc.has two service departments (Human Resources and Building Maintenance)and two production departments (Machining and Assembly).The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources.The square footage occupied by each department follows.
Over how many square feet would the Building Maintenance cost be allocated (i.e. ,spread)with the direct method and the step-down method?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 32

Which of the following methods would be of little use when allocating service department costs to production departments?

A)The direct method.
B)The reciprocal method.
C)The step-down method.
D)The net-realizable-value methoD.
E)The dual-cost allocation method.

Question 33

Harvest Corporation has two service departments (S1 and S2)and two production departments (P1 and P2),and uses the step-down method of cost allocation.Management has determined that S1 provides more service to the firm than S2,and has decided that the number of employees is the best allocation base to use for S1.The following data are available:
Which of the following statements is (are)true if S1 and S2 have respective operating costs of $280,000 and $350,000?

A)S2 should allocate a portion of its $350,000 cost to S1.
B)S1's cost should be allocated (i.e. ,spread)over 140 employees.
C)S1's cost should be allocated (i.e. ,spread)over 150 employees.
D)S2 should allocate a total of $390,000 to P1 and P2.
E)Statements "B" and "D" are both correct.

Question 34

Using the step-down method and assuming that the Human Resources Department is allocated first,the amount of Human Resources cost allocated to Sales Department no.3 is:

A)$12,000.
B)$12,857.
C)$13,500.
D)$15,000.
E)$22,500.

Question 35

Pederson uses the direct method of cost allocation and allocates cost on the basis of employees.If Human Resources cost amounts to $1,800,000,how much of the department's cost would be allocated to Machining?

A)$600,000.
B)$720,000.
C)$900,000.
D)$1,200,000.
E)Some other amount.

Question 36

Pederson uses the direct method of cost allocation and allocates cost on the basis of employees.If Human Resources cost amounts to $1,800,000,how much of the department's cost would be allocated to Assembly?

A)$900,000.
B)$720,000.
C)$1,080,000.
D)$1,200,000.
E)Some other amount.

Question 37

Which of the following methods accounts for 100% of the services that occur between service departments?

A)Direct method.
B)Indirect method.
C)Reciprocal method.
D)Step-down methoD.
E)Dual-cost allocation method.

Question 38

Using the step-down method and assuming the Human Resources Department is allocated first,the amount of Human Resources cost allocated to the Assembly Department is:

A)$21,053.
B)$28,947.
C)$54,000.
D)$60,000.
E)$78,842.

Question 39

Apex Metallurgy,Inc.has two service departments (Human Resources and Building Maintenance)and two production departments (Machining and Assembly).The company allocates Building Maintenance cost on the basis of square footage and Human Resources cost on the basis of employees.It believes that Building Maintenance provides more service than Human Resources.The square footage and employees in each department follow.
Assuming use of the step-down method,which of the following choices correctly denotes the number of square feet and employees over which the Building Maintenance cost and Human Resources cost would be allocated (i.e. ,spread)?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 40

Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees.Human Resources cost amounts to $1,200,000,and the department provides more service to the firm than Cafeteria.How much Human Resources cost would be allocated to Assembly?

A)$0.
B)$480,572.
C)$444,444.
D)$666,666.
E)Some other amount.

Question 41

The point in a joint production process where each individual product becomes separately identifiable is commonly called the:

A)decision point.
B)separation point.
C)individual product point.
D)split-off point.
E)joint product point.

Question 42

The joint-cost allocation method that recognizes the revenues at split-off but does not consider any further processing costs is the:

A)relative-sales-value method.
B)net-realizable-value method.
C)physical-units method.
D)reciprocal-accounting methoD.
E)gross margin at split-off method.

Question 43

Consider the following statements about dual-cost allocation:
I)Dual-cost allocation prevents a change in the short-run activity of one department from affecting the cost allocated to another department.
II)Dual-cost allocations create an incentive for user department managers to understate their expected long-run service needs.
III)Dual-cost allocations are generally preferred over lump-sum allocations,or those that combine variable and fixed costs together.
Which of the above statements is (are)true?

A)I only.
B)III only.
C)I and II.
D)II and III.
E)I,II,and III.

Question 44

Which of the following methods should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product?

A)Gross margin at split-off method.
B)Reciprocal-accounting method.
C)Relative-sales-value method.
D)Physical-units methoD.
E)Net-realizable-value method.

Question 45

Which of the following choices correctly denotes the data needed to allocate joint costs under the relative-sales-value method?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 46

The process of allocating fixed and variable costs separately is called:

A)the separate allocation procedure (SAP).
B)diverse allocation.
C)reciprocal-cost allocation.
D)common-cost allocation.
E)dual-cost allocation.

Question 47

When allocating joint costs,Weinberg calculates the final sales value of the various products manufactured and subtracts appropriate separable costs.The company is using the:

A)gross margin at split-off method.
B)reciprocal-accounting method.
C)relative-sales-value method.
D)physical-units methoD.
E)net-realizable-value method.

Question 48

The joint cost allocated to X under the net-realizable-value method would be:

A)$210,000.
B)$180,000.
C)$184,000.
D)$190,000.
E)some other amount.

Question 49

The joint cost allocated to Q under the relative-sales-value method would be:

A)$40,000.
B)$62,400.
C)$64,000.
D)$65,600.
E)some other amount.

Question 50

Using the step-down method and assuming the Human Resources Department is allocated first,the total amount of service department cost allocated to the Finishing Department is:

A)$58,947.
B)$61,158.
C)$74,000.
D)$78,842.
E)$81,053.

Question 51

When allocating service department costs,companies should use:

A)actual costs rather than budgeted costs,and separate rates for variable and fixed costs.
B)budgeted costs rather than actual costs,and separate rates for variable and fixed costs.
C)budgeted costs rather than actual costs,and a rate that combines variable and fixed costs.
D)actual costs rather than budgeted costs,and a rate that combines variable and fixed costs.
E)a rate that is based on matrix theory.

Question 52

Zena Company manufactures two products (A and B)from a joint process that cost $200,000 for the year just ended.Each product may be sold at the split-off point or processed further.Additional processing requires no special facilities,and production costs of further processing are entirely variable and traceable to the products involved.Further information follows.
If the joint costs are allocated based on the physical-units method,the amount of joint cost assigned to product A would be:

A)$80,000.
B)$100,000.
C)$104,000.
D)$120,000.
E)some other amount.

Question 53

The joint cost allocated to W under the net-realizable-value method would be:

A)$75,000.
B)$80,000.
C)$84,000.
D)$90,000.
E)some other amount.

Question 54

The joint cost allocated to P under the relative-sales-value method would be:

A)$17,600.
B)$16,400.
C)$24,000.
D)$25,600.
E)some other amount.

Question 55

Under dual-cost allocation,fixed costs are allocated on the basis of a user department's:

A)long-run usage of a service department's output.
B)short-run usage of a service department's output.
C)long-run usage and short-run usage of a service department's output.
D)neither long-run usage nor short-run usage of a service department's output.
E)either long-run usage or short-run usage of a service department's output.

Question 56

Nash Corporation allocates administrative costs on the basis of staff hours.Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow.
Variable and fixed administrative costs total $180,000 and $400,000,respectively.If Nash uses dual-cost accounting procedures,the total amount of administrative cost to allocate to Department 2 would be:

A)$301,600.
B)$307,000.
C)$313,600.
D)$319,000.
E)some other amount.

Question 57

Isthmus Corporation uses the physical-units method to allocate costs among its three joint products: X,Y,and Z.The following data are available for the period just ended:
Joint processing cost: $800,000
Total production: 150,000 pounds
Share of joint cost allocated to X: $160,000
Share of joint cost allocated to Y: $400,000
Which of the following statements is true?

A)The company would have relied on the sales value of each product when allocating joint costs to X,Y,and Z.
B)Ithaca produced 30,000 pounds of Z during the period.
C)Ithaca produced 45,000 pounds of Z during the period.
D)Ithaca produced 105,000 pounds of Z during the perioD.
E)Based on the data presented,it is not possible to determine Ithaca's production of Z during the period.

Question 58

A company that uses activity-based costing would likely allocate costs from:

A)service departments to production departments.
B)service departments to products and services.
C)service departments to production departments and then to products and services.
D)activity-cost pools to production departments.
E)activity-cost pools to products and services.

Question 59

Gandolf Corporation allocates administrative costs on the basis of staff hours.Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow.
If Gandolf uses dual-cost accounting procedures and variable administrative costs total $200,000,the amount of variable administrative cost to allocate to Department 1 would be:

A)$80,000.
B)$85,000.
C)$90,000.
D)$100,000.
E)some other amount.

Question 60

Romano Corporation allocates administrative costs on the basis of staff hours.Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow.
If Romano uses dual-cost accounting procedures and fixed administrative costs total $1,000,000,the amount of fixed administrative cost to allocate to Department 1 would be:

A)$400,000.
B)$450,000.
C)$500,000.
D)$850,000.
E)some other amount.

Question 61

Suppose that one hog yields 250 pounds of ham,200 pounds of chops,and 50 pounds of miscellaneous items.The sales value of ham is $1.80 per pound;chops,$2.50 per pound;and miscellaneous items,$1.00 per pound.The hog costs $670,and processing costs are $30.
Required:
A.Determine the proper allocation of joint costs to the three products by using the physical-units method.
B.Repeat part "B" by using the relative-sales-value method.

Question 62

If the joint production costs are allocated based on the physical-units method,the amount of joint cost assigned to product X would be:

A)$20,000.
B)$24,000.
C)$30,000.
D)$36,000.
E)$40,000.

Question 63

Madrid has two service departments (General Factory and Human Resources)and two production departments (Machining and Assembly).The company uses the direct method of service-department cost allocation,allocating General Factory cost on the basis of square feet and Human Resources cost on the basis of employees.Budgeted allocation-base and operating data for the four departments follow.
A.Allocate the company's service-department costs to the producing departments.
B.Compute the overhead application rates for Machining and Assembly.

Application rates:
Machining: $5,200,000 / 80,000 machine hours = $65 per MH
Assembly: $3,300,000 / 150,000 labor hours = $22 per LH

Question 64

Western Kentucky State College has two service departments,the Library and Computing Services,that assist the School of Business and the School of Health.Budgeted costs of the Library and Computing Services are $800,000 and $1,800,000,respectively.Usage of the service departments' output during the year is anticipated to be:
A.Use the direct method to allocate the costs of the Library and Computing Services to the School of Business and the School of Health.
B.Repeat requirement "A" using the step-down method.Western allocates the cost of Computing Services first.

School of Business: $1,080,000 + $196,000 = $1,276,000
School of Health: $540,000 + $784,000 = $1,324,000

Question 65

Consider the following statements about joint product cost allocation:
I)Joint product cost is allocated because it is necessary for inventory valuation.
II)Joint product cost is allocated because it is necessary for making economic decisions about individual products (e.g. ,sell at split-off or process further).
III)Joint cost may be allocated to products by using several different methods.
Which of the above statements is (are)correct?

A)I only.
B)III only.
C)I and II.
D)I and III.
E)I,II,and III.

Question 66

Ovation Corporation has two service departments (S1 and S2)and two production departments (P1 and P2).S1 and S2 both use the number of employees as an allocation base.The following data are available:
A.1.800 (300 + 500)
2.$93,750 [$250,000 * (300/800)]
3.None,because production department costs are not allocated to service departments.
A.Assuming use of the direct method:
1.Over how many employees would S1's budgeted cost be allocated?
2.How much of S2's cost would be allocated to P1?
3.How much of P1's cost would be allocated to S1?
B.1.S1's costs are allocated over 860 employees (60 + 300 + 500).Thus,$12,000 will be allocated to S2 [$172,000 * (60/860)].
2.S2's costs total $262,000 ($250,000 + $12,000),resulting in $163,750 being allocated to P2 [$262,000 * (500/800).
3.None,because S1's costs are allocated prior to those of S2.Once a department is closed,no costs are allocated back to it.
B.Assuming use of the step-down method:
1.How much of S1's cost would be allocated to S2? Ovation allocates S1's costs prior to allocating those of S2.
2.How much of S2's total cost would be allocated to P2?
3.How much of S2's total cost would be allocated to S1?

Question 67

Consider the following independent cases that relate to service department cost allocations:
Case A: Strickland Company has two service departments [Human Resources (H/R)and Information Systems] and two production departments (Machining and Assembly).Human Resource cost is allocated by using the direct method based on the number of personnel in each department.For the period just ended,there were 189 employees in Machining,and Machining received $90,000 of H/R's overhead of $200,000.How many employees are in the Assembly Department?
Case B: Walter Burke,controller of Alexander Enterprises,wants service department managers to be aware that their use of other service departments costs the firm a substantial amount of money.Would Burke prefer the direct method or the step-down method of cost allocation? Why?
Case C: Lockwood Company has four service departments (S1,S2,S3,and S4)and two production departments (P1 and P2).The costs of S1 are allocated first,followed in order by the costs of S2,S3,and S4.Lockwood uses the step-down method,and the costs of S2 are allocated based on the number of computer hours used.Computer hours logged during the period were as follows: S1,4,600;S2,7,100;S3,10,400;S4,17,600;P1,37,000;and P2,48,600.Over how many hours would S2's cost be allocated?
Case D: A recently hired staff accountant noted that given the nature of the allocations,the total cost allocated to production departments is typically less under the step-down method than under the direct method.Do you agree with the accountant? Why?
Required:
Answer the questions that are raised in Cases A,B,C,and
D.
Case A: Machining has been allocated 45% of H/R's cost ($90,000 ? $200,000)because it has 45% of the employees in the production departments.Since 189 represents 45% of the total,there are 420 employees in production (189 /0.45).Thus,Assembly has 231 personnel (420 - 189).
Case B: Burke would prefer the step-down method because service department costs are allocated to other service departments (although not all).Such a practice makes managers aware that services are not cost-free to the organization.
Case C: 113,600 (10,400 + 17,600 + 37,000 + 48,600)
Case D: No.Under both approaches,all service department costs are allocated to production departments.This process yields equal totals for each method.

Question 68

Many companies use the dual-rate method of cost allocation.
Required:
A.How does the dual-rate method work?
A.The dual-rate method involves creating two overhead rates,one for variable costs and another for fixed costs.The variable costs are normally allocated on the basis of short-run usage of the service department's output;fixed costs are allocated on the basis of long-run usage.
B.Is there any advantage of the dual-rate method over a method that uses a combined,lump-sum single rate? Briefly explain.
B.Yes.When a single rate is used,the cost allocated to a user department may be influenced by the amount of service consumed by another department.For example,a user department's service consumption could remain flat;yet the amount of cost allocated to that department could increase or decrease over previous amounts based solely on actions of other users.Dual rates eliminate this problem.

Question 69

If the joint production costs are allocated based on the relative-sales-value method,the amount of joint cost assigned to product X would be:

A)$20,000.
B)$27,000.
C)$33,000.
D)$40,000.
E)some other amount.

Question 70

Douglas Company,a new firm,manufactures two products,J and K,in a common process.The joint costs amount to $80,000 per batch of finished goods.Each batch results in 20,000 liters of output,of which 80% are J and 20% are K.
The two products are processed beyond the split-off point,with Douglas incurring the following separable costs: J,$2 per liter;K,$5 per liter.After the additional processing,the selling price of J is $12 per liter,and the selling price of K is $15 per liter.
Required:
A.Determine the proper allocation of joint costs if the company uses the net-realizable-value method.
B.Assume that Douglas sold all of its production of K during the current accounting period.Compute K's sales revenue,cost of goods sold,and gross margin.
C.Is the firm's cost-of-goods-sold figure influenced by the choice of a joint-cost allocation method? Briefly explain.

C.Yes.Cost of goods sold is based on both separable costs and joint cost.The choice of an allocation method will influence the amount of joint cost charged to the product.

Question 71

Ojai Chemical manufactures two industrial chemicals in a joint process.In October,$200,000 of direct materials were processed at a cost of $300,000,resulting in 16,000 pounds of Pentex and 4,000 pounds of Glaxco.Pentex sells for $35 per pound and Glaxco sells for $60 per pound.Management generally processes each of these chemicals further in separable processes to manufacture more refined products.Pentex is processed separately at a cost of $7.50 per pound,with the resulting product,Pentex-R,selling for $45 per pound.Glaxco is processed separately at a cost of $10 per pound,and the resulting product,Glaxco-R,sells for $100 per pound.
Required:
A.Compute the company's total joint production costs.
A.Joint production costs total $500,000 ($200,000 + $300,000).
B.

B.Assuming that total joint production costs amounted to $500,000,allocate these costs by using:
1.The physical-units methoD.
2.The relative-sales-value methoD.
3.The net-realizable-value methoD.

Question 72

If the joint production costs are allocated based on the net-realizable-value method,the amount of joint cost assigned to product Y would be:

A)$20,000.
B)$27,000.
C)$33,000.
D)$40,000.
E)some other amount.

Question 73

Barry Chemical Company manufactures X-111,X-112,and X-113 from a joint process.The following information is available for the period just ended:
A.Does Barry allocate joint costs by using the physical-units method? Explain.
A.No.X-112 comprises 28% of the total units produced (14,000 / 50,000);however,the product was allocated 23% of the total joint cost ($18,400 / $80,000).Apparently,then,another method is being used.
B.Assume that Barry does not use the physical-units method but instead allocates joint costs by using the relative-sales-value method.Find the four unknowns in the preceding table.
B.X-111 has 40% of the sales value ($104,000 / $260,000),resulting in 40% of the joint cost ($80,000 * 40%),or $32,000.This leaves $29,600 to be allocated to X-113 ($80,000 - $32,000 - $18,400).The sales values follow by using the same percentages that are used in the cost allocation ($18,400 / $80,000 = 23%;$260,000 * 23% = $59,800)and ($29,600/ $80,000 = 37%;$260,000 * 37% = $96,200).

Question 74

Which of the following statements about joint-cost allocation is false?

A)Joint-cost allocation is useful in deciding whether to further process a product after split-off.
B)Joint-cost allocation is useful in making a profit determination about individual joint products.
C)Joint-cost allocation is helpful in inventory valuation.
D)Joint-cost allocation can be based on the number of units produceD.
E)Joint-cost allocation can be accomplished by using several different methods that focus on sales value and product "worth."

Question 75

Eastside Hospital has two service departments (Patient Records and Accounting)and two "production" departments (Internal Medicine and Surgery).Which of the following allocations would likely take place under the reciprocal-services method of cost allocation?

A)Allocation of Accounting cost to Patient Records.
B)Allocation of Patient Records cost to Internal Medicine.
C)Allocation of Surgery cost to Accounting.
D)Allocation of Internal Medicine cost to Surgery.
E)Allocations "A" and "B" abovE.

Question 76

Holbrook Corporation is developing departmental overhead rates based on direct labor hours for its two production departments,Molding and Assembly.The Molding Department worked 20,000 hours during the period just ended,and the Assembly Department worked 40,000 hours.The overhead costs incurred by Molding and Assembly were $151,250 and $440,750,respectively.
Two service departments,Repair and Power,directly support the two production departments.These service departments have costs of $90,000 and $250,000,respectively.The following schedule reflects the use of Repair and Power's output by the various departments:
A.Allocate the company's service department costs to production departments by using the direct method.
B.Calculate the overhead application rates of the production departments.Hint: Consider both directly traceable and allocated overhead when deriving your answer.
C.Allocate the company's service department costs to production departments by using the step-down method.Begin with the Power Department,and round calculations to the nearest dollar.

Question 77

Westside Hospital has two service departments (Patient Records and Accounting)and two "production" departments (Internal Medicine and Surgery).Which of the following allocations would not take place under the reciprocal-services method of cost allocation?

A)Allocation of Accounting cost to Patient Records.
B)Allocation of Patient Records cost to Internal Medicine.
C)Allocation of Surgery cost to Accounting.
D)Allocation of Internal Medicine cost to Surgery.
E)Allocations "C" and "D" abovE.