Chapter 7—Allocating Costs of Support Departments and Joint
Products Key
1. Common costs are mutually beneficial costs, used in the output of two or more services or products.
2. Allocation increases total costs.
3. Producing departments create products and services to make and sell.
4. Producing departments provide essential services for support departments.
5. Causal factors are variables or activities within a producing department that stimulate the incurrence of
support costs.
6. A single changing rate uses the fixed costs of the support department.
7. The use of a multiple charging rate is needed, one for variable costs, and one for fixed costs.
8. Dual rates combine the fixed and variable costs.
9. Support department fixed costs are allocated on the basis of original capacity.
10. Budgeted rates are allocated based on original capacity.
11. The three methods of allocating support center costs to producing departments are the direct, sequential, and
reciprocal methods
12. The direct method is the most difficult way to allocate costs to the support departments.
13. The sequential method allocates costs in ranking order of support departments.
14. The reciprocal method of allocation recognizes only some of the support departments’ interactions.
15. Allocation is not necessary when using JIT manufacturing.
16. The overhead rate may be computed once allocation from support service cost to producing department has
been performed.
17. Departmental overhead rate is computed by dividing the budgeted base by the total overhead in a producing
department.
18. Departmental overhead is applied to products passing through the department.
19. The choice of allocation method depends on an evaluation of costs and benefits, and circumstances.
20. Joint production processes result in the output of two or more products produced simultaneously.
21. Joint products are two or more products produced simultaneously by the same process.
22. The split-off point is the ending point of a joint product process.
23. Costs that are easily traced to individual products are called separable costs.
24. Under the physical units method, joint costs are distributed to products on the basis of some physical
measure.
25. The weight factor addresses the advantages of the physical units method.
26. __________ are mutually beneficial costs to joint product costing.
27. Activities or variables within a producing department that provoke the incurrence of support costs are called
__________ .
28. The __________ charging rate combines variable and fixed costs of support departments.
29. Support department __________ costs are allocated on the basis of original capacity.
30. The __________ method of allocating costs, allocates costs from support to producing departments.
31. The __________ method of allocating costs assumes “step down” interdepartmental services.
32. After allocation, total overhead in producing department is divided by the budgeted measure of activity to
get the __________ overhead rate.
33. Departmental __________ is applied to products passing through the department.
34. Products produced simultaneously by the same process up to a point are called __________ products.
35. A secondary product recovered during the manufacturing of a primary product during a joint process is
called a(n): __________ .
36. Support department cost to the producing departments is(are) called:
37. A common cost occurs
38. Support departments
39. Examples of support departments include all of the following EXCEPT
40. Which of the following departments is NOT a support department?
41. The activities or variables within a producing department that provoke the incurrence of support costs are
called:
42. Examples of producing departments include all of the following EXCEPT
43. Support department costs are accounted for in which one of the following ways?
44. Which of the following would be the most appropriate base for allocating the costs of the housekeeping
department?
45. Which of the following would be the most appropriate base for allocating the costs of the maintenance
department?
46. A possible causal factor to use when allocating cafeteria costs would be
47. The major objective(s) of allocations are
48. Which of the following is NOT a major objective of allocation as identified by the IMA?
49. Which of the following cost categories would most likely use machine hours as its activity driver?
50. Which of the following cost categories would most likely use the number of employees or new hires as its
activity driver?
51. Which of the major objectives of allocation as identified by the IMA would NOT be relevant in a service
organization?
52. The Ruling Company assigns plant administration costs to the production departments based on the number
of employees. Which of the following would NOT be a good combination of common costs with an activity
driver?
53. If the costs of support departments are NOT allocated to producing departments,
54. Rules of financial reporting (GAAP) require
55. What is one of the potential disadvantages of NOT allocating support department costs to production
departments?
56. Which of the following is NOT a benefit of the costs of support departments being allocated to production
departments?
57. What is the most likely action to be taken by a company when a support department is NOT as cost effective
as an outside source?
58. Figure 7-1
Luxurious Department Store incurred $6,000 of indirect advertising costs for its operations. The following data
has been collected for 2014 for its three departments:
Sportswear
Lingerie
Appliances
Sales
$160,000
$120,000
$120,000
Direct advertising costs
$ 7,000
$ 12,000
$ 3,000
Newspaper ad space
62%
20%
18%
Refer to Figure 7-1. How much of the indirect advertising costs will be allocated to the Sportswear Department if newspaper ad space is the activity
driver?
59. Refer to Figure 7-1. How much of the indirect advertising costs will be allocated to the Lingerie Department
if direct advertising costs is the activity driver? (Round to the nearest dollar if necessary)
60. If a support department’s costs were budgeted to be $150,000 and actual costs incurred by the support
department were $200,000, the total amount of the support department’s costs that should be allocated to other
departments is
61. Figure 7-2
Long Distance Company’s travel department had the following budgeted costs for the coming year:
Variable costs $34 per trip
Fixed costs $143,360
The budgeted usage is given below:
Yearly Trips Monthly Peak Trips
West Sales Territory 110 trips 5
Midwest Sales Territory 170 trips 12
Southern Sales Territory 150 trips 15
Eastern Sales Territory 130 trips 8
The actual usage is given below:
West Sales Territory 100 trips
Midwest Sales Territory 150 trips
Southern Sales Territory 160 trips
Eastern Sales Territory 140 trips
Refer to Figure 7-2. Using a single charging rate, determine the rate per trip.
62. Figure 7-2
Long Distance Company’s travel department had the following budgeted costs for the coming year:
Variable costs $34 per trip
Fixed costs $143,360
The budgeted usage is given below:
Yearly Trips Monthly Peak Trips
West Sales Territory 110 trips 5
Midwest Sales Territory 170 trips 12
Southern Sales Territory 150 trips 15
Eastern Sales Territory 130 trips 8
The actual usage is given below:
West Sales Territory 100 trips
Midwest Sales Territory 150 trips
Southern Sales Territory 160 trips
Eastern Sales Territory 140 trips
Refer to Figure 7-2. Using a single charging rate, how much will be charged to the West Sales Territory?
63. Figure 7-2
Long Distance Company’s travel department had the following budgeted costs for the coming year:
Variable costs $34 per trip
Fixed costs $143,360
The budgeted usage is given below:
Yearly Trips Monthly Peak Trips
West Sales Territory 110 trips 5
Midwest Sales Territory 170 trips 12
Southern Sales Territory 150 trips 15
Eastern Sales Territory 130 trips 8
The actual usage is given below:
West Sales Territory 100 trips
Midwest Sales Territory 150 trips
Southern Sales Territory 160 trips
Eastern Sales Territory 140 trips
Refer to Figure 7-2. Using both a fixed and variable rate, what are the respective rates for fixed and variable
per trip for the West Sales Territory? Fixed costs are allocated on the basis of monthly peak trips.
64. Figure 7-2
Long Distance Company’s travel department had the following budgeted costs for the coming year:
Variable costs $34 per trip
Fixed costs $143,360
The budgeted usage is given below:
Yearly Trips Monthly Peak Trips
West Sales Territory 110 trips 5
Midwest Sales Territory 170 trips 12
Southern Sales Territory 150 trips 15
Eastern Sales Territory 130 trips 8
The actual usage is given below:
West Sales Territory 100 trips
Midwest Sales Territory 150 trips
Southern Sales Territory 160 trips
Eastern Sales Territory 140 trips
Refer to Figure 7-2. Using both a fixed and variable rate with fixed costs allocated on the basis of monthly
peak trips, what will the West Sales Territory be charged for the year? (round to the nearest dollar)
65. If the allocation is for product costing, the allocation of variable support department costs would be
calculated as
66. Figure 7-3
Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three
departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190
and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals
are estimated to use 130,000; Corporate will use
165,000 and 35,000 from the trust area.
Refer to Figure 7-3. Assuming a single charging rate is used, what would be the charge per page? (round to the
nearest cent)
67. Figure 7-3
Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three
departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190
and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals
are estimated to use 130,000; Corporate will use
165,000 and 35,000 from the trust area.
Refer to Figure 7-3. Assuming a single charging rate is used, if the Corporate Department used 190,000 pages,
what would be the printing charges for the Corporate Department? (Round to the nearest cent.)
68. Figure 7-3
Hanover and Trust, a large law firm, utilizes an internal centralized printing center to serve its three
departments: Individuals, Corporate, Trust. The costs of the printing department include fixed costs of $69,190
and variable costs of $0.04 per page. Total estimated print pages are estimated to be 330,000 pages. Individuals
are estimated to use 130,000; Corporate will use
165,000 and 35,000 from the trust area.
Refer to Figure 7-3. Assuming a single charging rate is used, if the total pages printed were 340,000, which of
the following statements is correct?
69. If the allocation is for performance evaluation, the allocation of variable support department costs would be
calculated as
70. FIGURE 7-4
Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support
department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the
support department are allocated to each copy center on the basis of total copies made.
During the first month, the costs of the support department were expected to be $200,000. Of this amount,
$60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows:
Copy Center 1
Copy Center 2
Normal activity (copies)
600,000
400,000
Actual activity (copies)
500,000
440,000
Refer to Figure 7-4. For purposes of performance evaluation, fixed costs allocated to Copy Center 1 are
71. FIGURE 7-4
Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support
department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the
support department are allocated to each copy center on the basis of total copies made.
During the first month, the costs of the support department were expected to be $200,000. Of this amount,
$60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows:
Copy Center 1
Copy Center 2
Normal activity (copies)
600,000
400,000
Actual activity (copies)
500,000
440,000
Refer to Figure 7-4. For purposes of performance evaluation, fixed costs allocated to Copy Center 2 are
72. FIGURE 7-4
Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support
department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the
support department are allocated to each copy center on the basis of total copies made.
During the first month, the costs of the support department were expected to be $200,000. Of this amount,
$60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$128,000 and actual fixed costs of $72,000.
Normal and actual activity (copies made) are as follows:
Copy Center 1
Copy Center 2
Normal activity (copies)
600,000
400,000
Actual activity (copies)
500,000
440,000
Refer to Figure 7-4. Support department costs NOT allocated to the two copy centers are
73. A company incurred $40,000 of common fixed costs and $60,000 of common variable costs. These costs are
to be allocated to Departments A and B. Data on capacity provided and capacity used are as follows:
Capacity Provided
Capacity Used
Department
in Hours
in Hours
A
800
640
B
480
640
Assume that common fixed costs are to be allocated to Departments A and B on the basis of capacity provided and that common variable costs are to
be allocated to Departments A and B on the basis of capacity used. The fixed and variable costs allocated to Department A are
Fixed
Variable
74. FIGURE 7-5
Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support
department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the
support department are allocated to each brochure center on the basis of total brochures made.
During the first month, the costs of the support department were expected to be $400,000. Of this amount,
$120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows:
Brochure Center 1
Brochure Center 2
Normal activity (brochures)
1,200,000
800,000
Actual activity (brochures)
1,000,000
880,000
Refer to Figure 7-5.For purposes of performance evaluation, fixed costs allocated to
Brochure Center 1 are
75. FIGURE 7-5
Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support
department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the
support department are allocated to each brochure center on the basis of total brochures made.
During the first month, the costs of the support department were expected to be $400,000. Of this amount,
$120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows:
Brochure Center 1
Brochure Center 2
Normal activity (brochures)
1,200,000
800,000
Actual activity (brochures)
1,000,000
880,000
Refer to Figure 7-5. For purposes of performance evaluation, fixed costs allocated to
Brochure Center 2 are
76. FIGURE 7-5
Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support
department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the
support department are allocated to each brochure center on the basis of total brochures made.
During the first month, the costs of the support department were expected to be $400,000. Of this amount,
$120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of
$256,000 and actual fixed costs of $144,000.
Normal and actual activity (brochures made) are as follows:
Brochure Center 1
Brochure Center 2
Normal activity (brochures)
1,200,000
800,000
Actual activity (brochures)
1,000,000
880,000
Refer to Figure 7-5. Support department costs NOT allocated to the two brochure centers are
77. A company incurred $80,000 of common fixed costs and $120,000 of common variable costs. These costs
are to be allocated to Departments A and B. Data on capacity provided and capacity used are as follows:
Capacity Provided
Capacity Used
Department
in Hours
in Hours
A
400
320
B
240
320
Assume that both fixed and variable costs are allocated on the basis of capacity used. The fixed and variable costs allocated to Department A are
Fixed
Variable
78. A company incurred $120,000 of common fixed costs and $180,000 of common variable costs. These costs
are to be allocated to Departments XX and YY. Data on capacity provided and capacity used are as follows:
Capacity Provided
Capacity Used
Department
in Hours
in Hours
XX
500
400
YY
300
400
Assume that common fixed costs are to be allocated to Departments XX and YY on the basis of capacity provided and that common variable costs
are to be allocated to Departments XX and YY on the basis of capacity used. The fixed and variable costs allocated to Department XX are
Fixed
Variable
79. A company incurred $120,000 of common fixed costs and $180,000 of common variable costs. These costs
are to be allocated to Departments XX and YY. Data on capacity provided and capacity used are as follows:
Capacity Provided
Capacity Used
Department
in Hours
in Hours
XX
500
400
YY
300
400
Assume that both fixed and variable costs are allocated on the basis of capacity used. The fixed and variable costs allocated to Department XX are
Fixed
Variable
80. If a support department’s costs were budgeted to be $75,000 and actual costs incurred by the support
department were $70,000, the total amount of the support department’s costs that should be allocated to other
departments is
81. Basic guidelines that should be followed when allocating support department costs include
82. Fixed support department costs should be allocated based on
83. Which of the following methods allocates support department costs?
84. The following information pertains to Famous Company:
Support
Departments
Producing
Departments
Personnel
Maintenance
Fabrication
Assembly
Budgeted overhead
$40,000
$72,000
$140,000
$160,000
Direct labor hours
2,000
2,500
8,000
10,000
Machine hours
–
–
12,000
8,000
Number of employees
4
5
15
25
Famous Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and
maintenance costs are allocated based on machine hours.
Predetermined overhead rates for fabrication and assembly are based on direct labor hours.
What is the amount of maintenance costs allocated to the Assembly Department using the direct method? (Round amounts to dollars.)
85. The following information pertains to Longboat Company:
Support Departments
Producing
Departments
Personnel
Maintenance
Fabrication
Assembly
Budgeted overhead
$40,000
$72,000
$140,000
$160,000
Direct labor hours
2,000
2,500
8,000
10,000
Machine hours
–
–
12,000
8,000
Number of employees
4
5
15
25
Longboat Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and
maintenance costs are allocated based on machine hours.
Predetermined overhead rates for fabrication and assembly are based on direct labor hours. (Round amounts to dollars.)
If the direct method is used to allocate support department costs, the predetermined overhead rate for the Fabrication Department (rounded to two
decimal places) would be