Chapter 17 – Allocation of Support Activity Costs and Joint Costs
42. Marshall Welding 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?
43. Stormy 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:
Department
Number of Employees
S1
10
S2
20
P1
50
P2
70
Which of the following statements is (are) true if S1 and S2 have respective operating costs of
$280,000 and $350,000?
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
Use the following information to answer Questions 44-46.
The Xtra Store has a Human Resources Department and a Janitorial Department that provide
service to three sales departments. The Human Resources Department cost is allocated on the
basis of employees, and the Janitorial Department cost is allocated on the basis of space. The
following information is available:
Human
Resources
Janitorial
Sales #1
Sales #3
Budgeted cost
$45,000
$30,000
Space in Square Feet
4,000
1,000
20,000
50,000
Number of employees
5
10
15
30
44. Using the direct method, the amount of Janitorial Department cost allocated to Sales
Department no. 2 is:
45. 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. 2 is:
46. 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:
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
Use the following information to answer Questions 47 & 48.
The Dahle Manufacturing Company has two production departments (Assembly and
Finishing) and two service departments (Human Resources and Janitorial). The projected
usage of the two service departments is as follows:
Use of
Human Resources
Use of
Janitorial
Human resource
—
5%
Janitorial
10%
—
Assembly
60%
40%
Finishing
30%
55%
The budgeted costs in the service departments are: Human Resources, $90,000 and Janitorial,
$50,000.
47. Using the direct method, the amount of Janitorial Department cost allocated to the
Finishing Department is:
48. 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:
49. The process of allocating fixed and variable costs separately is called:
50. Under dual-cost allocation, fixed costs are allocated on the basis of a user department’s:
51. 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.
52. When allocating service department costs, companies should use:
53. Grassley 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.
Department 1
Department 2
Total
Short-run usage (hours)
40,000
60,000
100,000
Long-run usage (hours)
45,000
55,000
100,000
If Grassley 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:
54. Soprano 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.
Department 1
Department 2
Total
Short-run usage (hours)
80,000
120,000
200,000
Long-run usage (hours)
90,000
110,000
200,000
If Soprano uses dual-cost accounting procedures and fixed administrative costs total
$1,000,000, the amount of long-run cost to allocate to Department 1 would be:
55. Nichols 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.
Department 1
Department 2
Total
Short-run usage (hours)
45,000
55,000
100,000
Long-run usage (hours)
48,000
52,000
100,000
Variable and fixed administrative costs total $180,000 and $400,000, respectively. If Nichols
uses dual-cost accounting procedures, the total amount of administrative cost to allocate to
Department 2 would be:
56. A company that uses activity-based costing would likely allocate costs from:
57. The point in a joint production process where each individual product becomes separately
identifiable is commonly called the:
58. The joint-cost allocation method that recognizes the revenues at split-off but does not
consider any further processing costs is the:
59. Which of the following choices correctly denotes the data needed to allocate joint costs
under the relative-sales-value method?
60. 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?
Sales Value of
Product at Split-Off
Separable
Cost
Sales Value of Product
After Processing Beyond
61. When allocating joint costs, Feinberg calculates the final sales value of the various
products manufactured and subtracts appropriate separable costs. The company is using the:
62. Hancock Machining manufactures A, B, and C, all of which are joint products, and D,
which is classified as a by-product. If joint manufacturing costs amount to $450,000 and the
company is using a popular accounting method, the firm will:
63. Hsu 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 Processed Further
Product
Pounds Produced
Per-Pound Sales
Price
Sales Value
Separable
Cost
A
20,000
$12
$350,000
$90,000
B
30,000
8
300,000
60,000
If the joint costs are allocated based on the physical-units method, the amount of joint cost
assigned to product A would be:
64. Ramos 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.
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
Use the following information to answer Questions 65 & 66.
Kingston Specialty Corporation manufactures joint products P and Q. During a recent period,
joint costs amounted to $80,000 in the production of 20,000 gallons of P and 60,000 gallons
of Q. Kingston can sell P and Q at split-off for $2.20 per gallon and $2.60 per gallon,
respectively. Alternatively, both products can be processed beyond the split-off point, as
follows:
P
Q
Separable processing costs
$15,000
$35,000
Sales price (per gallon) if processed beyond split-off
$3
$4
65. The joint cost allocated to Q under the relative-sales-value method would be:
66. The joint cost allocated to P under the relative-sales-value method would be:
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
Use this information to answer questions 67-68.
Corey Corporation manufactures joint products W and X. During a recent period, joint costs
amounted to $300,000 in the production of 20,000 gallons of W and 60,000 gallons of X.
Both products will be processed beyond the split-off point, giving rise to the following data:
67. The joint cost allocated to W under the net-realizable-value method would be:
68. The joint cost allocated to X under the net-realizable-value method would be:
Chapter 17 – Allocation of Support Activity Costs and Joint Costs
Use the following information to answer Questions 69 – 71.
Stoney Brook Company produces two products (X and Y) from a joint process. 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. Joint manufacturing costs for the year were $60,000. Sales values
and costs were as follows:
If Processed Further
Product
Units Made
Sales Price at Split-Off
Sales Value
Separable Cost
X
9,000
$40,000
$78,000
$10,500
Y
6,000
80,000
90,000
7,500
69. If the joint production costs are allocated based on the physical-units method, the amount
of joint cost assigned to product X would be:
70. 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:
71. 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:
72. Which of the following statements about joint-cost allocation is false?
73. 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?