Chapter 11 – Service Department and Joint Cost Allocation
11–47. (40 min.) Solve For Unknowns: Pat’s Print Shops.
a. Since the direct method is used, Operations Support’s (S2’s) costs are allocated
Chapter 11 – Service Department and Joint Cost Allocation
11-32
11–48. (40 min.) Solve For Unknowns: DM Components.
a. $100,000.
The company uses the step method allocating from S1 to the other three
departments first. The costs allocated from S1 to S2 in July were $20,000 and S2
Chapter 11 – Service Department and Joint Cost Allocation
11-33
11–49. (60 min.) Cost Allocation—Step Method With Analysis And Decision
Chapter 11 – Service Department and Joint Cost Allocation
11-49. (continued)
b.
Let:
S1
=
Steam generation
S2
=
Electric generating—fixed
S3
=
Electric generating—variable
S4
=
Equipment maintenance
P1
=
Alpha
P2
=
Beta
Chapter 11 – Service Department and Joint Cost Allocation
11-35
(.55 + .30)
(.55 + .30)
11-49. (continued)
Costs allocated from the electric department S2 + S3 = $108 + $333 = $441.
If electricity generation causes the costs allocated to it, then the company would
compare $441,000 internal cost to $480,000 from the outside utility.
Forgone steam sales …………………………………..
$174,000a
Equipment maintenance ……………………….….
27,000b
Direct costs ………………………………………………..
330,000
$531,000
which is greater than the proposed $480,000 electric company rates. Of course,
management might want to consider other factors when making this decision.
aThe $174,000 from the sale of steam is an opportunity cost. If Steamco produces its
own electricity, it loses $174,000 in potential sales of steam.
b $27,000 = $18,000 + $9,000 allocated from equipment maintenance.
Chapter 11 – Service Department and Joint Cost Allocation
11-36
11–50. (30 min.) (Appendix) Cost Allocations—Reciprocal Method (Computer
Required): Steamco.
Chapter 11 – Service Department and Joint Cost Allocation
11–51. (30 min.) Cost Allocation— Step Method, Reciprocal Method: Manzano
Bank.
a. The key to this problem is to recognize that Administration provides no service to
either of the other two service departments and that Processing only provides
services to Administration and not to Maintenance. Therefore, there are no
Chapter 11 – Service Department and Joint Cost Allocation
11–52. (30 min.) Cost Allocation— Step Method and Reciprocal Method:
Farmington Components.
The key to this problem is to write out the equations expressing the usage:
Administration = $95,000 + 0.5 x Engineering + 0.2 x Maintenance
Chapter 11 – Service Department and Joint Cost Allocation
11-39
11–53. (35 min.) Allocate Service Department Costs: Not-A-Mega Bank
a. $140,000
$140,000
=
140
x
$240,000
(140 + 100)
b. $70,000
$70,000
=
218,750
x
$160,000
(281,250 + 218,750)
c. $5,856
$5,856
=
9,600
x
$203,200
(3,500 + 9,600 + 176,000 + 144,000)
d. $0.
Chapter 11 – Service Department and Joint Cost Allocation
11-40
11–54. (45 min.) Allocate Service Department Costs—Ethical Issues: FSP.
a. Direct Method:
Member
Department
Commercial
Department
Total
Accounting …………….
$8,000a
$8,000a
$16,000
Computer Services ….
12,320b
49,280c
61,600
Total …………………..
$20,320
$57,280
$77,600
a
$8,000
=
.40
x
$16,000
(.40 + .40)
b
$12,320
=
.10
x
$61,600
(.10 + .40)
c
$49,280
=
.40
x
$61,600
(.10 + .40)
b. This is clearly unethical and likely fraudulent.
c. The answer to this question depends, at least in part, on the reason for the change.
Computer
Services
Accounting
Member
Department
Commercial
Department
Before allocation …………
$61,600
$16,000
$ –0–
$ –0–
Computer Services ……..
(61,600)
30,800a
$6,160b
$24,640c
Accounting …………………
______
(46,800)
23,400d
23,400d
Total ……………………..
$ –0–
$ –0–
$29,560
$48,040
a
$30,800
=
.50
x
$61,600
(.50 + .10 + .40)
b
$6,160
=
.10
x
$61,600
(.50+ .10 + .40)
c
$24,640
=
.40
x
$61,600
(.50 + .10 + .40)
d
$23,400
=
.40
x
($16,000 + $30,800)
(.40 +.40)