46) The Hsu Manufacturing Company has two service departments: Maintenance and
Accounting. The Maintenance Department’s costs of $300,000 are allocated on the basis of
machine hours. The Accounting Department’s costs of $120,000 are allocated on the basis of the
number of employees within a specific department. The direct departmental costs for A and B
are $300,000 and $500,000, respectively.
Maintenance Accounting A B
Machine hours 480 20 2,300 200
Number of employees 2 2 8 4
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.
47) The Hsu Manufacturing Company has two service departments: Maintenance and
Accounting. The Maintenance Department’s costs of $300,000 are allocated on the basis of
machine hours. The Accounting Department’s costs of $120,000 are allocated on the basis of the
number of employees within a specific department. The direct departmental costs for A and B
are $300,000 and $500,000, respectively.
Maintenance Accounting A B
Machine hours 480 20 2,300 200
Number of employees 2 2 8 4
What is the Maintenance Department’s cost allocated to Department B (rounded to the nearest
whole dollar) 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.
48) The Hsu Manufacturing Company has two service departments: Maintenance and
Accounting. The Maintenance Department’s costs of $300,000 are allocated on the basis of
machine hours. The Accounting Department’s costs of $120,000 are allocated on the basis of the
number of employees within a specific department. The direct departmental costs for A and B
are $300,000 and $500,000, respectively.
Maintenance Accounting A B
Machine hours 480 20 2,300 200
Number of employees 2 2 8 4
What is the cost of the Accounting Department’s cost allocated to Department A (rounded to the
nearest whole dollar) using the step method and assuming the Maintenance Department’s costs
are allocated first?
A) $81,333.
B) $81,587.
C) $80,000.
D) $68,571.
49) Steven Parker owns and operates Steven’s Septic Service and Legal Advice. Steven’s two
revenue generating (production) operations are supported by two service departments: Clerical
and Janitorial. Costs in the service departments are allocated in the following order using the
designated allocation bases:
Clerical:
Variable cost: expected number of work orders processed.
Fixed cost: long-run average number of work orders processed.
Janitorial:
Variable cost: labor hours.
Fixed cost: square footage of space occupied.
Average and expected activity levels for next month (June) are as follows:
No. of Work Orders Expected Average Labor Hours Square
Footage
Septic Service 50 80 560 1,800
Legal advice 25 20 840 2,200
Clerical 20 20 400 1,600
Janitorial 5 20 200 1,000
Expected costs in the service departments for June are as follows:
Clerical Janitorial
Variable costs $ 12,000 $ 4,200
Fixed costs $ 8,400 $ 800
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.
50) Steven Parker owns and operates Steven’s Septic Service and Legal Advice. Steven’s two
revenue generating (production) operations are supported by two service departments: Clerical
and Janitorial. Costs in the service departments are allocated in the following order using the
designated allocation bases:
Clerical:
Variable cost: expected number of work orders processed
Fixed cost: long-run average number of work orders processed
Janitorial:
Variable cost: labor hours
Fixed cost: square footage of space occupied
Average and expected activity levels for next month (June) are as follows:
No. of Work Orders Expected Average Labor Hours Square
Footage
Septic Service 50 80 560 1,800
Legal advice 25 20 840 2,200
Clerical 20 20 400 1,600
Janitorial 5 20 200 1,000
Expected costs in the service departments for June are as follows:
Clerical Janitorial
Variable costs $ 12,000 $ 4,200
Fixed costs $ 8,400 $ 800
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.
51) Cordner Corporation has two production departments, P1 and P2, and two service
departments, S1 and S2. Direct costs for each department and the proportion of service costs
used by the various departments for the month of July are as follows:
Proportion of Services Used by:
Department Direct costs S1 S2 P1 P2
S1 $ 60,000 0.70 0.10 0.20
S2 $ 100,000 0.20 0.30 0.50
P1 $ 160,000
P2 $ 140,000
Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be:
A) $42,000.
B) $20,000.
C) $0.
D) $6,000.
52) Cordner Corporation has two production departments, P1 and P2, and two service
departments, S1 and S2. Direct costs for each department and the proportion of service costs
used by the various departments for the month of July are as follows:
Proportion of Services Used by:
Department Direct costs S1 S2 P1 P2
S1 $ 60,000 0.70 0.10 0.20
S2 $ 100,000 0.20 0.30 0.50
P1 $ 160,000
P2 $ 140,000
Under the direct method of cost allocation, the amount of S1 costs allocated to P1 would be:
A) $20,000.
B) $6,000.
C) $30,000.
D) $62,500.
53) Cordner Corporation has two production departments, P1 and P2, and two service
departments, S1 and S2. Direct costs for each department and the proportion of service costs
used by the various departments for the month of July are as follows:
Proportion of Services Used by:
Department Direct costs S1 S2 P1 P2
S1 $ 60,000 0.70 0.10 0.20
S2 $ 100,000 0.20 0.30 0.50
P1 $ 160,000
P2 $ 140,000
Under the step method of cost allocation, the amount of S2 costs allocated to S1 would be:
A) $40,000.
B) $20,000.
C) $0.
D) $42,000.
54) Cordner Corporation has two production departments, P1 and P2, and two service
departments, S1 and S2. Direct costs for each department and the proportion of service costs
used by the various departments for the month of July are as follows:
Proportion of Services Used by:
Department Direct costs S1 S2 P1 P2
S1 $ 60,000 0.70 0.10 0.20
S2 $ 100,000 0.20 0.30 0.50
P1 $ 160,000
P2 $ 140,000
Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be:
A) $88,750.
B) $50,000.
C) $62,500.
D) $53,250.
55) Cordner Corporation has two production departments, P1 and P2, and two service
departments, S1 and S2. Direct costs for each department and the proportion of service costs
used by the various departments for the month of July are as follows:
Proportion of Services Used by:
Department Direct costs S1 S2 P1 P2
S1 $ 60,000 0.70 0.10 0.20
S2 $ 100,000 0.20 0.30 0.50
P1 $ 160,000
P2 $ 140,000
Under the step method of allocation, the total amount of service costs allocated to producing
departments would be:
A) $118,000.
B) $160,000.
C) $140,000.
D) $40,000.
31
56) Palace Company has two service departments and two user departments. The number of
employees in each department is:
Personnel 10
Cafeteria 25
Producing Department A 265
Producing Department B 250
550
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.
57) There are several methods for allocating service department costs to production departments.
The method which recognizes service provided by one service department to another but does
not recognize reciprocal interdepartmental service is called: (CMA adapted)
A) Direct method.
B) Variable method.
C) Linear method.
D) Step method.
58) Because this allocation method recognizes that service departments often provide each other
with interdepartmental service, it is theoretically considered to be the most accurate method for
allocating service department costs to production departments. This method is: (CMA adapted)
A) Direct method.
B) Variable method.
C) Linear method.
D) Reciprocal method.
59) The following information relates to Osceola Corporation for the past accounting period.
Direct costs
Service Department A $ 80,000
Service Department B 60,000
Producing Department C 15,000
Producing Department D 20,000
Proportion of service by A to:
B 10 %
C 60 %
D 30 %
Proportion of service by B to:
A 30 %
C 20 %
D 50 %
Using the reciprocal (simultaneous solution) method, Department A’s cost allocated to
Department C (rounded to the nearest whole dollar) is:
A) $48,000.
B) $58,800.
C) $60,619.
D) $98,000.
60) The following information relates to Osceola Corporation for the past accounting period.
Direct costs
Service Department A $ 80,000
Service Department B 60,000
Producing Department C 15,000
Producing Department D 20,000
Proportion of service by A to:
B 10 %
C 60 %
D 30 %
Proportion of service by B to:
A 30 %
C 20 %
D 50 %
Using the reciprocal (simultaneous solution) method, Department B’s cost allocated to
Department C (rounded to the nearest whole dollar) is:
A) $29,021
B) $14,021
C) $13,192
D) $7,794
61) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department P1 (subassemblies) is:
A) P1 = $550,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
B) P1 = $550,000 + 0.30S1 + 0.50S2 + 0.20S3.
C) P1 = 0.30S1 + 0.50S2 + 0.20S3.
D) P1 = 0.30S1 + 0.50S.
62) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department P2 (final assembly) is:
A) P2 = 0.25S1 + 0.50S2 + 0.30S3.
B) P2 = $775,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
C) P2 = $775,000 + 0.30S1 + 0.50S2 + 0.20S3.
D) P2 = $775,000 +0.25S1 + 0.50S2 + 0.30S3.
63) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department P3 (marketing) is:
A) P3 = $285,000 + 0.20S1 + 0.20S3.
B) P3 = $285,000 + 0.20S1 + 0.60S2 + 0.20S3.
C) P3 = $285,000 + 0.20S1 + 0.20S2 + 0.60S3.
D) P3 = $285,000 + 0.50S1 + 0.50S3.
64) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department S1 (building occupancy) is:
A) S1 = 0.10S3.
B) S1 = $85,000 + 1.00S3.
C) S1 = $85,000 + 0.10S3.
D) S1 = $85,000 + 0.90S2 + 0.10S3.
65) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department S2 (research and development) is:
A) S2 = $120,000 + 0.15S1 + 0.65S2 + 0.20S3.
B) S2 = 0.15S1 + 20S3.
C) S2 = $120,000 + 0.15S1 + 0.20S3.
D) S2 = $120,000 + 0.40S1 + 0.60S3.
66) The following is a system of simultaneous linear equations to allocate costs using the
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments
in Westmoreland Company.
Department Direct Costs Label
Subassemblies $ 550,000 P1
Final assembly 775,000 P2
Marketing 285,000 P3
Building occupancy 85,000 S1
Research & development 120,000 S2
Supervision 45,000 S3
Use of services by other departments is as follows.
User Departments
Service Cost Center Sub-assemblies Final Assembly Marketing
Building Occupancy R&D Supervision
Building occupancy 0.30 0.25 0.20 — 0.15 0.10
R&D 0.50 0.50 — — — —
Supervision 0.20 0.30 0.20 0.10 0.20 —
The equation for department S3 (supervision) is:
A) S3 = $45,000 + 0.90S1 + 0.10S2.
B) S3 = $45,000 + 0.10S1.
C) S3 = $45,000 + 1.00S1.
D) S3 = 0.10S1.