Deck 11: Service Department and Joint Cost Allocation

Question 1

The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales.

Answer 1

False

Question 2

One advantage of the step method is that all reciprocal services are recognized between service departments.

Answer 2

False

Question 3

In deciding whether to outsource a service department or not,the cost of the service department should be estimated using the step method of allocation.

Answer 3

False

Question 4

With the reciprocal method,the total service department costs less the direct costs of the service department equals the cost allocated to the service department.

Question 5

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

Question 6

The step method allocates some,but not all,service department costs to other service departments.

Question 7

One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs.

Question 8

If a company's two joint products can be sold at the split-off point,there is no reason for allocating the joint costs to the products.

Question 9

In general,it is better to use a product's market value at the split-off point than its estimated net realizable value in allocating joint costs.

Question 10

The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile.

Question 11

Joint products are outputs from common inputs and a common production process.

Question 12

In a sell-or-process-further decision,the common costs incurred prior to the spilt-off point are irrelevant.

Question 13

In a sell-or-process-further decision,the additional costs incurred after the split-off point are irrelevant.

Question 14

Joint costs are processing costs incurred after the split-off point in a common production process.

Question 15

The direct method makes no cost allocations between or among service departments.

Question 16

Which of the following is the least practical reason for allocating service department costs to user departments?

A)To ascertain profitability of user departments.
B)To evaluate performance of managers and divisions.
C)To make user departments aware that services are costly.
D)To provide the best possible service to users.

Question 17

Since by-products have minor sales value,alternative methods of accounting for them will not have a material effect on the financial statements.

Question 18

One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization's service departments.

Question 19

The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.

Question 20

The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.

Question 21

The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the

A)replacement method.
B)physical quantities method.
C)net realizable value method.
D)units produced method.

Question 22

Which of the following methods provides no data for service departments to monitor each other's costs?

A)Direct method.
B)Reciprocal method.
C)Step method.
D)All three methods,Direct,Reciprocal,and Step,provide data for monitoring costs.

Question 23

Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?

A)Tons of steel
B)Ounces of gold
C)Dollars of labor
D)Feet of lumber

Question 24

Joint products and byproducts are produced simultaneously by a single process or series of processes and

A)joint products are salable at the split-off point,but byproducts are not.
B)byproducts are salable at the split-off point,but joint products are not.
C)the revenue from byproducts may be recognized at the time of production.
D)all byproducts must be allocated some portion of joint costs.

Question 25

Criteria for selecting allocation bases for service department allocations should not include

A)direct,traceable benefits from the service.
B)the extent of facilities provided.
C)the ease of making an allocation.
D)sales dollars generated during the period.

Question 26

Allocated joint costs are useful for

A)setting the selling price of a product.
B)determining whether to continue producing an item.
C)controlling user department costs.
D)evaluating management by means of a responsibility reporting system.
E)determining inventory cost for accounting purposes.

Question 27

Which of the following service departments could logically use space occupied (square footage)to allocate its costs to user departments?

A)Material Handling
B)Cafeteria
C)Custodial Services
D)Cost Accounting
E)Engineering

Question 28

Which of the following best describes the objective of joint cost allocation?

A)Inventory valuation.
B)Pricing goods for sale.
C)Making decisions about levels of production.
D)Making decisions about raw materials requirements.

Question 29

Which of the following statements is (are)false regarding the direct method of allocating service department costs? (A)The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.
(B)Once an allocation is made from a service department using the direct method,no further allocations are made back to that department.

A)Only A is false.
B)Only B is false.
C)Neither A nor B is false.
D)Both A and B are false.

Question 30

Service department costs are

A)generally treated as period costs rather than product costs.
B)reported as selling and administrative expenses on the income statement.
C)eventually applied by the user departments to the units produced.
D)seldom found in manufacturing organizations.

Question 31

A management purpose for allocating joint costs of a processing center to the various products produced is to

A)establish inventory values for unsold units.
B)record accurate cost of sales by product line.
C)compute total processing cost variances by product.
D)report correct standard product costs for comparative analysis.

Question 32

Net realizable value at the split-off point is used to allocate

A)a
B)b
C)c
D)d

Question 33

LaCrescent University has 20 departments.Two of its best departments are the (1)College of UBW (Underwater Basket Weaving)and (2)Testing Services.The College of UBW attempts to teach students the difficult,but useful,skill of weaving baskets underwater.Testing Services grades examinations for professors.How would these two departments be classified?

A)a
B)b
C)c
D)d

Question 34

Which of the following is a weakness of the step method of service cost allocations?

A)Computations are more complex than the reciprocal method.
B)All interdepartmental services are ignored.
C)All intradepartmental services are ignored.
D)The order of service department allocation has to be determined.

Question 35

Which of the following statements is false?

A)The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.
B)In general,it is better to use a product's market value at the split-off point than its estimated net realizable value.
C)The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.
D)It is better to use the net realizable value method for allocating joint costs than the estimated net realizable value method.

Question 36

For purposes of allocating joint costs to joint products,the estimated net realizable value at split-off is equal to

A)final sales price reduced by cost to complete after split-off.
B)sales price less a normal profit margin at the point of sale.
C)separable product cost plus a normal profit margin.
D)total sales value less joint costs at point of split-off.

Question 37

Which of the following departments is not a service department in a typical manufacturing company?

A)Assembly
B)Accounting
C)Human resources
D)Information processing

Question 38

If two service departments service the same number of departments,which service department's costs should be allocated first when using the step method?

A)The service department that provides the most service to other service departments.
B)The service department that provides the most service to the user departments.
C)The service department with the least cost.
D)The service department that provides the least service to other service departments.
E)The service department that provides the least service to the user departments.

Question 39

Product C is one of several joint products that come out of Department M.The joint costs incurred in Department M total $40,000.Product C can be sold at split-off or processed further and sold as a higher quality item.The decision to process further should be based on the

A)assumption that the $40,000 is irrelevant.
B)allocation of the $40,000,using the net realizable value.
C)allocation of the $40,000,using a physical measures approach.
D)allocation of the $40,000,using the relative sales value at split-off method.

Question 40

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?

A)Direct materials
B)Variable overhead
C)Direct labor
D)Fixed overhead
E)Freight-out

Question 41

Using the most appropriate allocation basis,what is the personnel cost allocated to Division A?

A)$58,143
B)$74,643
C)$76,463
D)$110,000

Question 42

How much rent is allocable to the assembly department using the direct method of allocation?

A)$420,000
B)$332,500
C)$300,000
D)$252,000

Question 43

Bagley Company has two service departments and two producing departments.Square footage of space occupied by each department follows: The department costs of Custodial Services are allocated on a basis of square footage of space.If Custodial Services costs are budgeted at $38,000,the amount of cost allocated to General Administration under the direct method would be

A)$0.
B)$7,125.
C)$6,000.
D)$5,700.

Question 44

Using the simultaneous solution method,department A's cost allocated to department C is

A)$48,000
B)$58,800
C)$60,619
D)$98,000

Question 45

What is the Maintenance Department's cost allocated to Department B using the step method and assuming the Maintenance Department's costs are allocated first?

A)$276,000
B)$230,000
C)$322,000
D)$23,810

Question 46

If all common costs are allocated using operating profit as the allocation basis,what is the total cost allocated to Division B?

A)$457,286
B)$512,714
C)$555,000
D)$1,087,576

Question 47

Under the step method (Op first),what is the cost of the computer time and the computer programs for sale?

A)a
B)b
C)c
D)d
E)e

Question 48

Under the reciprocal method what is the algebraic solution to the cost allocation problem?

A)Op = 4,500 + .40 P; P = 2,500 + .30 Op.
B)Op = 4,500 + .70 P; P = 2,500 + .60 Op.
C)Op = 2,500 + .40 P; P = 4,500 + .30 Op.
D)Op = 2,500 + .70 P; P = 4,500 + .60 Op.

Question 49

How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?

A)$36,000
B)$40,000
C)$54,000
D)$90,000

Question 50

Products with a relatively minor sales value are called

A)scrap.
B)spoilage.
C)by-products.
D)main products.

Question 51

Under the direct method of allocation,what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)

A)$6,231
B)$7,720
C)$8,640
D)$9,330
E)$9,804

Question 52

What is the cost of the Accounting Department's cost allocated to Department A using the stefp method and assuming the Maintenance Department's costs are allocated first?

A)$81,333
B)$81,587
C)$80,000
D)$68,571

Question 53

What is the Maintenance Department's cost allocated to Department A using the direct method?

A)$92,000
B)$230,000
C)$276,000
D)$386,400

Question 54

Using the simultaneous solution method,department B's cost allocated to department C is

A)$29,021
B)$14,021
C)$13,192
D)$7,794

Question 55

What is the Accounting Department's cost allocated to Department B using the direct method?

A)$40,000
B)$80,000
C)$20,000
D)$10,000

Question 56

Castle Company has two service departments and two producing departments.The number of employees in each department is The department costs of the Personnel Department are allocated on a basis of the number of employees.If these costs are budgeted at $37,125 during a given period,the amount of cost allocated to Department B under the direct method would be

A)$0.
B)$17,187.50.
C)$16,875.00.
D)$18,021.84.

Question 57

Under the step method of allocation,how much Clerical service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)

A)$12,689
B)$13,100
C)$13,620
D)$15,596
E)$16,070

Question 58

If common computer service costs are allocated using computer time as the allocation basis,what is the computer cost allocated to Division B?

A)$136,190
B)$137,647
C)$144,444
D)$173,333

Question 59

Castle Company has two service departments and two user departments.The number of employees in each department is The fixed costs of the Personnel Department are allocated on a basis of the number of employees.If these costs are budgeted at $37,125 during a given period,the amount of cost allocated to the Cafeteria under the step method would be

A)$0.
B)$1,718.75.
C)$1,687.50.
D)$1,802.18.

Question 60

The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of

A)sales value of the products produced during the common production process.
B)direct manufacturing costs (e.g.,materials)incurred before the split-off point.
C)physical measures in the products produced during the common production process.
D)time (i.e.,labor)required to produce the products from start to finish.

Question 61

Assuming that joint production costs are allocated using the physical quantities method (units produced),what were the costs allocated to Product X?

A)$27,000.
B)$29,000.
C)$33,000.
D)$30,000.

Question 62

Assuming that joint product costs are allocated using the net realizable value method,what were the total costs assigned to Product Y?

A)$26,000.
B)$26,796.
C)$27,000.
D)$28,286.

Question 63

Products X,Y,and Z are produced from the same process at a cost of $5,200.Five thousand pounds of raw material yields 1,500 X,2,500 Y,and 1,000 Z.Selling prices are: X $2 per unit,Y $4 per unit,Z valueless.The ending inventory of X is 50 units.What is the value of the ending inventory if joint costs are allocated using net realizable value?

A)$21.67.
B)$31.20.
C)$40.00.
D)$42.00.

Question 64

The equation for department P1 (subassemblies)is

A)P1 = $550,000 + .25P2 + .20P3 + .15S2 + 10S3.
B)P1 = $550,000 + .30S1 + .50S2 + .20S3.
C)P1 = .30S1 + .50S2 + 20S3.
D)P1 = .30S1 + .50S.

Question 65

The equation for department S3 (supervision)is

A)S3 = $45,000 + .90S1 + .10S2.
B)S3 = $45,000 + .10S1.
C)S3 = $45,000 + 1.00S1.
D)S3 = .10S1.

Question 66

The Freed Company produces three products,X,Y,and Z from a single raw material input.Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000.Product Y

A)should be sold at the split-off point,rather than processed further.
B)would increase the company's overall net income by $18,000 if processed further and then sold.
C)would increase the company's overall net income by $68,000 if processed further and then sold.
D)would increase the company's overall net income by $2,000 if processed further and then sold.

Question 67

Assume Q is a by-product and Moody uses the cost reduction method of accounting for by-product cost.If estimated net realizable value is used,how much of the joint costs would be allocated to product R?

A)$38,889
B)$43,750
C)$50,000
D)$62,500

Question 68

The equation for department S1 (building occupancy)is

A)S1 = .10S3.
B)S1 = $85,000 + 1.00S3.
C)S1 = $85,000 + .10S3.
D)S1 = $85,000 + .90S2 + .10S3.

Question 69

Zebra Manufacturing Company incurred a joint cost of $600,000 in the production of R and S in a joint process.Presently,1,800 of R and 1,400 of S are being produced each month.Management plans to decrease R's production by 300 units in order to increase the production of S by 500 units.Additionally,this change will require minor modifications,which will add $20,000 to the joint cost.This cost is entirely attributable to product S.What is the amount of the joint costs allocable to R and S before changes to existing production assuming Zebra allocates their joint costs according to the proportion of S and R produced?

A)a
B)b
C)c
D)d

Question 70

Lankip Company produces two main products and a by-product out of a joint process.The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month.Lankip has employed the physical-volume method to allocate joint production costs to the two main products.The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products.Data regarding Lankip's operations for the current month are presented in the chart below.During the month,Lankip incurred joint production costs of $2,520,000.The main products are not marketable at the split-off point and,thus,have to be processed further. The amount of joint production cost that Lankip would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be

A)$1,200,000
B)$1,260,000
C)$1,500,000
D)$1,575,000

Question 71

The equation for department S2 (research and development)is

A)S2 = $120,000 + .15S1 + .65S2 + .20S3.
B)S2 = .15S1 + 20S3.
C)S2 = $120,000 + .15S1 + .20S3.
D)S2 = $120,000 + .40S1 + .60S3.

Question 72

Raymer Corporation produced 3,660 units,consisting of three separate products,in a joint process for the year.The market for these products was so unstable that it was not practical to estimate the selling price of the products.A cost of $425,000 was incurred in the joint process.Product X's production was 80% of product Y's while product Z's production was 125% of product Y's.What is the amount of the joint cost allocable to product X assuming Raymer uses the physical quantities method of allocation?

A)$111,475
B)$114,865
C)$139,344
D)$141,667

Question 73

If the estimated net realizable value method is used and product Q is accounted for as a main product,how much of the joint costs would be allocated to product R?

A)$38,889
B)$41,667
C)$50,000
D)$62,500

Question 74

The equation for department P3 (marketing)is

A)P3 = $285,000 + .20S1 + .20S3.
B)P3 = $285,000 + .20S1 + .60S2 + .20S3.
C)P3 = $285,000 + .20S1 + .20S2 + .60S3.
D)P3 = $285,000 + .50S1 + .50S3.

Question 75

If joint costs are allocated based on relative weight of the outputs and all products are main products,how much of the joint costs would be allocated to product P?

A)$43,750
B)$50,000
C)$60,000
D)$62,500

Question 76

What is the net income of Moody Company if the estimated net realizable value method of joint cost allocation is used?

A)$20,000
B)$50,000
C)$150,000
D)$350,000

Question 77

Great Falls Company makes two products,G and H.They are initially processed from the same raw material and then,after split-off,further processed separately.Additional information is as follows: What are the joint costs allocated to products G and H assuming Great Falls uses the estimated net realizable value approach?

A)a
B)b
C)c
D)d

Question 78

The equation for department P2 (final assembly)is

A)P2 = .25S1 + .50S2 + .30S3.
B)P2 = $775,000 + .25P2 + .20P3 + .15S2 + .10S3.
C)P2 = $775,000 + .30S1 + .50S2 + .20S3.
D)P2 = $775,000 + .25S1 + .50S2 + .30S3.

Question 79

Anchorage Company manufactures three main products,L,M and N,from a joint process.Additional information for June production activity follows: Assuming that the 10,000 units of N were processed further and sold for $78,000 what was Anchorage's gross profit from this sale? Assume the physical quantities method of allocation is used.

A)$21,000
B)$28,500
C)$30,000
D)$66,000

Question 80

Lite Co.manufactures products X and Y from a joint process that also yields a by-product,Z.Revenue from sales of Z is treated as a reduction of joint costs.Additional information is as follows: Joint costs were allocated using the net realizable value method at split-off approach.The joint costs allocated to product X were

A)$75,000.
B)$100,800.
C)$150,000.
D)$168,000.