Chapter 11 – Service Department and Joint Cost Allocation
11–36. (20 min.) Net Realizable Value Method To Solve For Unknowns: GG
Products, Inc.
Since the sales value of each product at the split-off point is available, the appropriate
Chapter 11 – Service Department and Joint Cost Allocation
11-22
11–39. (15 min.) Net Realizable Value Method: Douglas Company.
The net realizable value method is a cost allocation method that allocates joint costs in
proportion to the net realizable value of the individual products. The calculation is:
Net Realizable
Value at
Split-Off
($000)
Allocation
Joint Costs
Allocated
W–10 ………….
$ 210
(210 ÷ 600)
x
$240,000
$84,000
W–20 ………….
180
(180 ÷ 600)
x
240,000
72,000
W–30 ………….
120
(120 ÷ 600)
x
240,000
48,000
W–40 ………….
90
(90 ÷ 600)
x
240,000
36,000
$600
$240,000
11–40. (15 min.) Physical Quantities Method: Douglas Company.
The physical units method is a cost allocation method that allocates joint costs in
proportion to the units produced of the individual products. The calculation is:
Production
(units)
Allocation
Joint Costs
Allocated
W–10 ………….
35,000
(35 ÷ 100)
x
$240,000
$84,000
W–20 ………….
25,000
(25 ÷ 100)
x
240,000
60,000
W–30 ………….
20,000
(20 ÷ 100)
x
240,000
48,000
W–40 ………….
20,000
(20 ÷ 100)
x
240,000
48,000
100,000
$240,000
11–41. (15 min.) Sell or Process Further: Douglas Company.
Product W-40. The sales value at split-off is $90,000. If processed further, the sales
Chapter 11 – Service Department and Joint Cost Allocation
11-23
11–42. (20 min.) Physical Quantities Method: Kyle Company.
a.
Total units of KA ………………
=
56,000
units
Total units produced …………
=
112,000
units
Joint product costs ……………
=
$126,000
Amount allocated from joint costs:
56,000
x
$126,000
=
$63,000
112,000
Additional processing costs …….……………………
36,000
Total costs of Product KA ……….………………….
$99,000
b.
Net realizable value of KB at split-off ……..
=
$140,000
Total net realizable value at split-off ………
=
400,000
Joint product costs ………………………………
=
126,000
Amount allocated from joint costs:
$140,000
x
$126,000
=
$44,100
$400,000
Additional processing costs ……………………..…..
28,000
Total costs allocated to KB …………………………..
$72,100
Chapter 11 – Service Department and Joint Cost Allocation
11-24
11–43. (20 min.) Physical Quantities Method; Sell or Process Further: Kyle
Company.
a.
When KC can no longer be sold and must be disposed of, the disposal costs become
56,000
x
$240,000
=
$140,000
96,000
Similarly,
Amount allocated from joint costs to KB:
40,000
x
$240,000
=
$100,000
96,000
Chapter 11 – Service Department and Joint Cost Allocation
11-25
11–44. (20 min.) Physical Quantities Method With By-Product: Trans-Pacific
Lumber
The net realizable value of the sawdust ($10,000) is deducted from the total processing
25,500 units
x
$260,000
=
$78,000
25,500 units + 59,500 units
and to Grade-B Lumber:
59,500 units
x
$260,000
=
$182,000
25,500 units + 59,500 units
Chapter 11 – Service Department and Joint Cost Allocation
11-26
Solutions to Problems
11–45. (50 min.) Step Method With Three Service Departments: Model, Inc.
a. To facilitate the solution, reduce the different allocation bases to proportions used by
departments other than the same department.
Proportion Used By
Administration
Accounting
Maintenance
Molding
Painting
Building Area ……….………………….
—a
.06b
.04b
.72
.18
Employees ………….……………….
.09c
—a
.06c
.35
.50
Equipment Value ….……………………….
.01d
.20d
—a
.52d
.27
a Self-usage is ignored
b Basis is 500,000 square feet, which ignores Administration: .06 = 30,000 500,000;
.04 = 20,000 500,000; etc.
c Basis is 200 employees, which ignores Accounting: .09 = 18 200; .06 = 12 200;
etc.
d Basis is $600, which ignores Maintenance: .01 = $6 $600; .20 = $120 $600;
.52 = $312 $600; etc.
Chapter 11 – Service Department and Joint Cost Allocation
11-27
11-45. (continued)
Model, Inc.
Step Method
To
Maintenance
Accounting
Administration
Molding
Painting
Direct Costs …….…………………….
$198,000
$375,000
$270,000
$687,500
$485,000
FROM
Maintenancea …..………………………
(198,000)
39,600
1,980
102,960
53,460
Accountingb ……..……………………
(414,600)
39,696
154,372
220,532
Administrationc
_________
_______
(311,676)
249,341
62,335
Totals ……….………………….
–0–
–0–
–0–
$1,194,173
$821,327
a
$39,600
=
.20
x
$198,000;
(.01 + .20 + .52 + .27)
$1,980
=
.01
x
$198,000, etc.
(.01 + .20 + .52 + .27)
b
$39,696
=
.09
x
$414,600;
(.09 + .35 + .50)
$154,372
=
.35
x
$414,600, etc.
(.09 + .35 + .50)
c
$249,341
=
.72
x
$311,676;
(.72 + .18)
$62,335
=
.18
x
$311,676
(.72 + .18)
$1,194,173 + 821,327 = $2,015,500 which is the total of the direct costs for all service
and producing departments.
Chapter 11 – Service Department and Joint Cost Allocation
11-28
11-45. (continued)
b.
Molding
Painting
Direct materials …………………………..
$237,500
$210,000
Direct labor …………………………..
337,500
200,000
Overhead (direct) …………………………..
112,500
75,000
Overhead (allocated) …………………………..
506,673
336,327
Totals ……………………..……
$1,194,173
$821,327
Unit cost:
Molding:
$1,194,173 ÷ 100,000 units …..………………………
=
$11.94
Painting:
$821,327 ÷ 100,000 units ……..……………………
=
8.21
Total …………………………………………………..
$20.15
c. Unit cost of allocated service department costs:
Molding: $506,673 ÷ 100,000 units = $5.07
Painting: $336,327 ÷ 100,000 units = $3.36
Molding did not meet management’s standard of keeping service department costs
below $3.50, but Painting did meet the standard.
Chapter 11 – Service Department and Joint Cost Allocation
11-29
11–46. (40 min.) Comparison of Allocation Methods: GB Service Corp.
a. Direct Method:
Administration
Accounting
East
West
Department costs ………….……………….
$90,000
$36,000
$234,000
$900,000
Administration allocationa .………………………….
(90,000)
NA
18,000
72,000
Accounting allocationb …………………………..
NA
(36,000)
7,200
28,800
Total costs allocated ……..……………………
–0–
–0–
$259,200
$1,000,800
a
$ 18,000
=
15
x $90,000
(15 + 60)
$72,000
=
60
x $90,000
(15 + 60)
b
$7,200
=
10,000
x $36,000
(10,000 + 40,000)
$28,800
=
40,000
x $36,000
(10,000 + 40,000)
b. Step Method—Administration First:
To
From
Admin
Accounting
East
West
Department costs …………………………..
$90,000
$36,000
$234,000
$900,000
Administration
allocationa …………………..………
(90,000)
22,500
13,500
54,000
Accounting allocationb ….……………………….
(58,500)
11,700
46,800
Total Costs………………….……….
–0–
–0–
$259,200
$1,000,800
a
$ 22,500
=
25
x $90,000
(25 + 15 + 60)
$13,500
=
15
x $90,000
(25 + 15 + 60)
$ 54,000
=
60
x $90,000
(25 + 15 + 60)
b $58,500 = $36,000 direct costs + $22,500 from Administration.
$11,700
=
10,000
x $58,500
(10,000 + 40,000)
$46,800
=
40,000
x $58,500
Chapter 11 – Service Department and Joint Cost Allocation
(10,000 + 40,000)
11-46. (continued)
c. Reciprocal Method: