Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
17) What is the complete reciprocated cost of the Data Processing and the Plant Maintenance,
respectively?
A) $90,000 and $393,750
B) $118,750 and $365,000
C) $122,971 and $375,773
D) $152,432 and $375,773
E) $152,432 and $369,459
18) What is the Machining Department’s allocation of both service departments respectively if their
complete reciprocated cost were $375,000 for Plant Maintenance and $100,000 for Data Processing?
A) $112,275 and $74,468
B) $131,250 and $84,375
C) $281,250 and $12,500
D) $337,500 and $200,000
E) $337,500 and $12,500
19) What is the Capping Department’s total cost if both service departments are allocated using the
complete reciprocated cost method and their costs for the year were $375,000 for Plant Maintenance and
$100,000 for Data Processing?
A) $412,766
B) $321,898
C) $196,898
D) $191,053
E) $184,132
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
20) Which method allows for partial recognition of the services rendered by support departments to other
support departments?
A) the direct allocation method
B) the interdepartmental method
C) the reciprocal allocation method
D) the step-down method
E) the step-down allocation method
21) Which of the following is a valid conclusion, in comparing the three allocation methods?
A) The reciprocal method is conceptually inferior.
B) The direct method is viewed as too complex by most organizations.
C) The step-down method is viewed as too complex by most organizations.
D) Many managers find the step-down method too simple.
E) Many managers find the reciprocal method difficult to understand.
22) The step-down allocation method:
A) typically begins with the support department that provides the highest percentage of its total services
to other support departments
B) recognizes the total amount of services that support departments provide to each other
C) allocates complete reciprocated costs
D) offers key input for outsourcing decisions
E) allocates support department costs to production departments only
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
Answer the following questions using the information below:
Betty’s Book and Music Store has two service departments, Warehouse and Data Centre. Warehouse
Department costs of $175,000 are allocated on the basis of budgeted warehouse-hours. Data Centre
Department costs of $75,000 are allocated based on the number of computer log-on hours. The costs of
operating departments Music and Books are $125,000 and $150,000, respectively. Data on budgeted
warehouse-hours and number of computer log-on hours are as follows:
Support Departments
Production
Departments
Warehouse
Department
Data Centre
Department
Music
Books
Budgeted costs
$175,000
$75,000
$125,000
$150,000
Budgeted warehouse-hours
NA
250
500
750
Number of computer hours
100
NA
400
500
23) Using the direct method, what amount of Warehouse Department costs will be allocated to
Department Books?
A) $70,000
B) $105,000
C) $75,000
D) $87,500
E) $30,000
24) Using the direct method, what amount of Data Centre Department costs will be allocated to
Department Music?
A) $75,000
B) $33,333
C) $41,667
D) $30,000
E) $97,222
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
25) Using the step-down method, what amount of Data Centre Department cost will be allocated to the
Warehouse Department if the service department with the highest percentage of interdepartmental
support service is allocated first? (Round up)
A) $25,000
B) $75,000
C) $7,500
D) $0
E) $17,500
26) Using the step-down method, what amount of Warehouse Department cost will be allocated to
Department Music if the service department with the highest percentage of interdepartmental support
service is allocated first? (Round up)
A) $58,333
B) $116,667
C) $60,833
D) $121,667
E) $0
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
27) Using the step-down method, what amount of Data Centre Department cost will be allocated to
Department Music if the service department with the highest percentage of interdepartmental support
service is allocated first? (Round up)
A) $58,671
B) $33,333
C) $46,296
D) $41,667
E) $0
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
Answer the following question(s) using the information below.
Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The
following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
M (Support Dept)
$150,000
P (Support Dept)
$80,000
W (Weaving Dept)
$325,000
C (Colourizing Dept)
$175,000
Services furnished:
By Maintenance (budgeted labour-hours):
to Personnel
500
to Weaving
3,500
to Colourizing
2,000
By Personnel (Number of employees serviced):
Plant Maintenance
5
Weaving
15
Colourizing
10
28) Which of the following linear equations represents the complete reciprocated cost of the Personnel
Department?
A) P = $150,000 – $80,000 (500/6,000) M
B) P = (500/6,000) M
C) P = $80,000 + (500/6,000) M
D) P = $80,000
E) P = $150,000 + (500/6,000) M
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
29) What is the complete reciprocated cost of the Maintenance Department?
A) $165,634
B) $163,333
C) $150,000
D) $0
E) $93,803
30) What is the complete reciprocated cost of the Personnel Department?
A) $92,500
B) $93,803
C) $80,000
D) $105,000
E) $165,634
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
31) Seacrest Corp. allocates support department overhead costs to operating departments X and Y by
means of the reciprocal allocation method. Information for the current month is as follows:
Support Departments
A B
Overhead Costs $20,000 $10,000
Services provided
to departments:
A – 10%
B 20% –
X 40% 30%
Y 40% 60%
100% 100%
Required:
Provide the linear equation to be used in the allocation of A’s costs:
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
32) Rainier Manufacturing Company uses the step-down method for allocating its support department
costs to operating departments. The overhead costs of support Department A are to be allocated first,
followed by the costs of B, and then those of C. The distribution of services is as follows:
Service Support Operating
Supplied by Departments Departments
A B C X Y
A – 10% 50% 20% 20%
B 40% – 15% 30% 15%
C 25% 25% – 20% 30%
Required:
a. Calculate the percentage of B’s costs that should be allocated to Y.
b. Calculate the percentage of C’s costs that should be allocated to B under the step-down method.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
33) Krum Lawn Equipment has five departments, of which Casting and Finishing are producing
departments. Maintenance, Product Movement, and Inspection are service departments. The distribution
of the service departments is as follows:
Service Costs Services provided to:
Maint. Prod. Move. Insp. Cast. Finish.
Maintenance $84,000 5% 25% 50% 20%
Product movement 160,000 10% 5 45 40
Inspection 38,000 15 5 20 60
Required:
Use the direct method to allocate the service departments’ costs. Prepare a schedule showing the total
costs allocated to each department.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 14 – Period Cost Allocation
34) Broadway Department Store allocates the personnel and payroll department costs to the sales
departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide
services to each other. Personnel costs are allocated by number of employees and payroll costs are
allocated by gross payroll. Costs and other information for January were as follows:
Personnel Payroll Shoes Automotive Clothing
Current costs $13,800 $6,400 $24,400 $40,000 $31,500
Gross payroll $3,000 $1,500 $5,600 $8,700 $4,050
Number of employees 5 3 8 15 4
Required:
Prepare a schedule, which includes the total cost of operating the sales departments for January. Allocate
service costs using the step-down method with the sequence of allocation based on highest percentage
support concept.