164. Albemarle, Inc., has two producing departments. Each producing department is held responsible for a share
of the costs of a support department.
Actual and budgeted data are as follows:
2011
Support department hours used:
Department X
8,000
Department Y
16,000
Total hours
24,000
Support department costs:
Actual support department costs
$72,000
Budgeted fixed service center costs
$24,000
Budgeted variable rate per hour
$3.00
Normal support department usage is 12,000 hours each for Department X and Department Y.
Required:
a.
Assuming the purpose is product costing, allocate the costs of the support department using the direct method.
b.
Assuming the purpose is to evaluate performance, allocate the costs of the support department.
Department X
Department Y
Variable costs allocated:
($3.00 ´ 12,000)
$36,000
($3.00 ´ 12,000)
$36,000
Fixed costs allocated:
[$24,000 ´ (12,000/24,000)]
12,000
12,000
$48,000
$48,000
b.
Department X
Department Y
Variable costs allocated:
($3.00 ´ 8,000)
$24,000
($3.00 ´ 16,000)
$48,000
Fixed costs allocated:
[$24,000 ´ (12,000/24,000)]
12,000
12,000
$36,000
$60,000
165. Chrome Enterprises has two support departments (S1 and S2) and two producing departments (A and B).
The distribution of services by the support departments is as follows:
Services Provided to
Services Provided from
S1
S2
A
B
S1
–
8%
74%
18%
S2
21%
–
47%
32%
Total department costs for the support and producing departments are as follows:
S1
$ 58,000
S2
124,000
A
712,000
B
568,000
Required:
Find the amount of total costs for A and B using the reciprocal method.
S1
S2
A
B
Direct costs
$58,000
$124,000
$712,000
$568,000
Allocate S1
(85,476)
6,838
63,252
15,386
Allocate S2
27,476
(130,838)
61,494
41,868
$ -0-
$ -0-
$836,746
$625,254
166. Eagle Company applies factory overhead in its two producing departments using a predetermined rate
based on budgeted machine hours in the Blending Department and based on budgeted labor hours in the
Containerizing Department. Variable cafeteria costs are allocated to the producing departments based on
budgeted number of employees, and fixed costs are allocated based on the capacity number of employees.
Variable maintenance costs are allocated on the budgeted number of direct labor hours, and fixed costs are
allocated on labor hour capacity. The data concerning next year’s operations are as follows:
Support Departments
Producing Departments
Budgeted costs:
Cafeteria
Maintenance
Blending
Containerizing
Variable costs
$60,000
$84,000
$300,000
$324,000
Fixed costs
18,000
30,000
120,000
140,000
Other data:
Direct labor hours (capacity)
10,000
20,000
Direct labor hours (budgeted)
8,000
16,000
Number of employees (capacity)
30
60
Number of employees (budgeted)
20
40
Machine hours (capacity)
33,000
66,000
Machine hours (budgeted)
20,000
60,000
Required:
a.
Prepare a schedule showing the allocation of budgeted support department costs to producing departments.
b.
Determine the predetermined overhead rate for the producing departments.
a.
Departments
Budgeted costs:
Cafeteria
Maintenance
Blending
Containerizing
Variable costs
$60,000
$84,000
$300,000
$324,000
Var. cost allocations:
Cafeteria:
(60,000)
$60,000 ´ (20/60)
20,000
$60,000 ´ (40/60)
40,000
Maintenance:
(84,000)
$84,000 ´ (8/24)
28,000
$84,000 ´ (16/24)
56,000
Fixed costs
18,000
30,000
120,000
140,000
Fixed cost allocations:
Cafeteria:
(18,000)
$18,000 ´ (30/90)
6,000
$18,000 ´ (60/90)
12,000
Maintenance:
(30,000)
$30,000 ´ (10/30)
10,000
$30,000 ´ (20/30)
20,000
Total budgeted OH
167. McDuff Company uses a job-order costing system to compute product costs. There are two producing
departments (P1 and P2) and two support departments (S1 and S2). The costs incurred in S1 and S2 are
allocated to Departments A and B and included in their factory overhead rates for costing products. S1 costs are
allocated based on the number of employees, S2 costs are allocated based on direct labor hours, and the
production departmental overhead rates are also based on direct labor hours. The following data are available
for a recent period:
S1
S2
P1
P2
Direct department costs
$12,000
$18,000
$70,000
$117,500
Number of employees
8
12
48
72
Direct labor hours
450
325
2,250
1,800
Required:
a.
Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method. The
department with the greatest percentage of interdepartmental services should be allocated first.
b.
Determine the overhead rates per direct labor hour for P1 and P2.
c.
Job A2 was completed during the period at a cost of $26,000 for direct materials and direct labor costs. This job required 21 direct labor
hours in Department P1 and 15 direct labor hours in Department P2. What was the total cost of Job A2?
Determination of order of allocation:
S1 = 12/(12 + 48 + 72) = 9.09%
S2 = 450/(450 + 2,250 + 1,800) = 10%
S2 is allocated first.
S2 allocation:
Total
Allocation base (DLH)
4,500
450
2,250
1,800
Percent of total base
100%
10%
50%
40%
Cost allocation
$18,000
$1,800
$9,000
$7,200
S1 allocation:
Percent of total base
100%
40%
60%
Cost allocation
$13,800
$5,520
$8,280
Cost allocation summary:
Total
Dept. costs
$12,000
$18,000
$70,000
$117,500
$217,500
Cost allocations:
S2
1,800
(18,000)
9,000
7,200
–
S1
(13,800)
–
5,520
8,280
–
Department costs
after allocation
$ -0-
$ -0-
$84,520
$132,980
$217,500
168. Mainstream Corporation manufactures two products, I and II, from a joint process. A production run costs
$20,000 and results in 500 units of I and 2,000 units of II. Both products must be processed past the split-off
point, incurring separable costs of $5 per unit for I and $10 per unit for II. The market price is $25 for I and $20
for II.
Required:
a.
Allocate joint production costs to each product using the physical units method.
b.
Allocate joint production costs to each product using the net realizable value method.
c.
Allocate joint production costs to each product using the constant gross margin percentage method.
I
500
5/25 ´ $20,000 =
$ 4,000
2,000
20/25 ´ $20,000 =
$16,000
2,500
$13,333
Costs (500 ´ $5) + (2,000 ´ $10) + $20,000 = $42,500
COGS Percentage = $42,500/$52,500 = 80.9524%
I: (500 ´ $25 ´ 80.9524%) – $2,500 = $7,619.05
II: (2,000 ´ $20 ´ 80.9524%) – $20,000 = $12,380.96
b.
Total (1)
$84,520
$132,980
Factory overhead per DLH ((1)/(2))
$ 37.56
$ 73.88
c.
Direct materials and direct labor
$26,000.00
Department A factory overhead (21 hours ´ $37.56)
788.76
Department B factory overhead (15 hours ´ $73.88)
1,108.20
169. Soy Products produces two products, Soyburgers and Soy steaks, in a single process. In 2014, the joint
costs of this process were $36,000. In addition, 20,000 pounds of soyburgers and 10,000 pounds of soy steaks
were produced. Separable processing costs beyond the split-off point were: soyburgers, $7,500; soy steaks,
$4,500. Soyburgers sells for $2 per pound; Soy steaks sells for $4 per pound.
Required:
a.
Allocate the joint costs using the net realizable value method.
b.
Allocate the joint costs using the physical units method.
Soyburgers
$40,000
$7,500
$32,500
$32,500/$680,000
Soy Steaks
$40,000
$4,500
35,500
$35,500/$680,000
$68,000
b.
Units
Fraction
Allocation
30,000
170. Henderson Company pays a flat fee of $500 for the right to retrieve stray golf balls from lakes and ponds at
golf and country clubs. The recovered balls are then cleaned, graded as to quality (birdie, bogey, or duffer), and
sold to sporting goods stores at the following prices per dozen: birdie quality, $5; bogey quality, $4; and duffer
quality, $3. Last month $8,000 of cost was incurred retrieving the following quantities of golf balls: birdie
quality, 1,000 dozen; bogey quality, 3,000 dozen; and duffer quality, 2,000 dozen.
Required: (Calculate relative quantity to three decimal points.)
a.
Determine the cost and gross profit percent for each type of golf ball using the physical units method of joint cost allocation.
b.
Repeat part (a) using the sales-value-at-split-off method of joint cost allocation.
c.
The company has an opportunity to sell bogey quality balls for $4.50 per dozen to a company that operates golf driving ranges; however,
the balls will have to be painted and striped. The company estimates that the cost of painting and striping will be 60 cents per dozen.
Assuming the physical unit method is used to allocate joint costs, should the offer be accepted?
a.
Quantity
Relative
Birdies
1,000
0.167 ´
$8,000 =
$1,336
Bogeys
3,000
0.500 ´
$8,000 =
4,000
Duffers
2,000
0.333 ´
$8,000 =
2,664
Total
6,000
1.000
$8,000
Birdies
Bogeys
Duffers
Total
Unit sales (dozens)
1,000
3,000
2,000
6,000
Sales
$5,000
$12,000
$6,000
$23,000
Joint costs
1,336
4,000
2,664
8,000
Gross profit %
73.28%
66.67%
55.60%
65.22%
b.
Relative
Product
Sales Value
Sales Value
Joint Cost
Allocation
Birdies
$ 5,000
0.22 ´
$8,000 =
$1,760
Duffers
6,000
0.26 ´
$8,000 =
2,080
$23,000
1.00
$8,000
Sales
$5,000
$12,000
$6,000
$23,000
Joint costs
1,760
4,160
2,080
8,000
Gross profit
$3,240
$ 7,840
$3,920
$15,000
Gross profit %
64.800%
65.333%
65.333%
65.217%
c.
The decision to accept the offer is not affected by the allocation of joint costs, only the relevant revenues and costs after split-off. Since the
171. Compare and contrast the various methods of accounting for joint product costs.
172. Saturn Company manufactures products X, Y, and Z in a joint process. The following information is
available:
Products
X
Y
Z
Total
Units produced
12,000
?
?
24,000
Sales value
at split-off
?
?
$50,000
$200,000
Joint costs
$48,000
?
?
$150,000
Sales value if
processed further
$110,000
$90,000
$60,000
$260,000
Additional cost if
processed further
$18,000
$14,000
$10,000
$42,000
Joint product costs are allocated using the sales value at split-off approach.
Required:
a.
What is the sales-value-at-split-off for Product X?
b.
What is the amount of joint costs allocated to Product Y using the sales-value-at-split-off method?
c.
If the company used the physical units method to allocate joint cost, how much joint cost would be allocated to Product X?
a.
$48,000/$150,000 ´ $200,000 = $64,000
b.
{$150,000 – $48,000 – [($50,000/$200,000) ´ $150,000]} = $64,500
c.
12,000/24,000 ´ $150,000 = $75,000
173. Vladimir, Inc. began the current period with no inventories. During the period, it processed 50,000 pounds
of materials costing $450,000. Conversion costs incurred during the period amounted to $660,000. The firm
ended the period with no work-in-process. During the period, the firm produced 16,000, 24,000, and 10,000
units of X, Y, and Z, respectively. All costs are considered joint costs. The firm sold 12,000 units of X, 16,000
units of Y, and 9,000 units of Z. X sells for $30 per unit, Y for $44 per unit, and Z for $4 per unit. The firm uses
the net realizable value method for cost allocation. Z is considered a by-product.
Required:
a.
Discuss the following methods to account for by-products:
• other income
• replacement cost
• joint cost proration
b.
Give three examples of by-products.
Joint cost proration is when one of the joint cost allocation methods is used to allocate a portion of joint costs to the by-product.
174. Mandala Inc. obtains two products and a by-product from its production process. By-product revenues are
treated as other income and a noncost approach is used to assign costs to them. During the period, 1,200 units
were processed at a cost of $12,000 for materials and conversion costs, resulting in the following:
Sales Value
Costs after
Final
Product
Units
at Separation
Separation
Value
X
200
$4,000
$2,000
$10,000
Y
400
5,000
6,000
12,000
By-product
150
500
500
1,500
Required:
a.
Account for all costs using a physical basis for allocation.
b.
Account for all costs using net realizable value as the basis for allocation.
c.
Account for all costs using final sales value as the basis for allocation.
d.
How much joint costs should be allocated to the by-product?
a.
Product
Units
Fraction
Allocation
X
200
2/6
$ 4,000
Y
400
4/6
8,000
Product
Allocation
Sep. Costs
Total
X
$ 4,000
$2,000
$ 6,000
Y
8,000
6,000
14,000
$12,000
$20,000
b.
Product
Sales
Sep. Costs
NRV
Fraction
X
$10,000
$2,000
$ 8,000
8/14
Y
12,000
6,000
6,000
6/14
Product
Allocation
Sep. Costs
Total
X
$ 6,857
$2,000
$ 8,857
Y
5,143
6,000
11,143
$12,000
$8,000
$20,000
c.
Product
Sales
Fraction
Allocation
X
$10,000
10/22
$5,455
Y
$12,000
12/22
6,545
Product
Allocation
Sep. Costs
Total
X
$ 5,455
$2,000
$ 7,455
B
6,545
6,000
12,545
$12,000
$20,000
d.
None of the cost of the joint costs should be assigned to the by-product.