Accounting Chapter 7 Homework Overs should not be processed further as there will be

Exercise 7.20

1. Allocation ratios:

Pesticide Liquid Fertilizer

Square feet ………………. 0.4667 0.5333

Cost assignment:

Pesticide Liquid Fertilizer

Direct costs $ 78,900 $107,800

Power:

General Factory:

(0.4667 × $314,000) ………. 146,544

(0.5333 × $314,000) ………. 167,456

Purchasing:

2. Departmental overhead rates:

Exercise 7.21

1. Assume the support department costs are allocated in order of highest to

lowest cost: General Factory, Purchasing, and Power.

General Liquid

Power Factory Purchasing Pesticide Fertilizer

Square feet …………….. 0.1250 — 0.1250 0.3500 0.4000

General Liquid

Power Factory Purchasing Pesticide Fertilizer

Direct costs ……………. $ 90,000 $ 314,000 $ 167,000 $ 78,900 $107,800

General Factory:

(0.1250 × $314,000) 39,250 (39,250)

(0.1250 × $314,000) (39,250) 39,250

Purchasing:

(0.1000 × $206,250) 20,625 (20,625)

Power:

(0.7500 × $149,875) (112,406) 112,406

2. Pesticide: $424,956/24,000 = $17.71 per machine hour (rounded)

7-21

Exercise 7.22

1. General Factory Receiving Assembly Finishing

Square footage …………… — 0.20 0.40 0.40

Number of receiving

orders …………………….. 0.10 — 0.56 0.34

R = 160,000 + 0.2GF GF = 400,000 + 0.1R

General

Factory Receiving Assembly Finishing

Direct overhead cost …… $ 400,000 $ 160,000 $ 43,000 $ 74,000

Allocate:

General Factorya………. (424,490) 84,898 169,796 169,796

2. Departmental rates:

Exercise 7–23

1. Assembly Finishing

Square footage ………………….. 0.5000 0.5000

General Factory:

(0.5000 × $400,000) ……… $200,000

Receiving:

(0.6222 × $160,000) ……… 99,552

7-22

Exercise 7.24

1.

Receiving Assembly Finishing

Square footage …………………………... 0.2000 0.4000 0.4000

Number of receiving orders …………. 0.6222 0.3778

General

Factory Receiving Assembly Finishing

Direct overhead cost ….. $ 400,000 $ 160,000 $ 43,000 $ 74,000

Allocate:

General Factorya ……… (400,000) 80,000 160,000 160,000

2. Assembly: $352,328/25,000 = $14.09 per direct labor hour

Exercise 7.25

1. Units Percent × Joint Cost = Allocated Joint Cost

Barlon …………… 1,400 0.1400 $127,400 $ 17,836

2. Weight Weighted Joint Allocated

Units × Factor = Units Percent × Cost = Joint Cost

Barlon ………. 1,400 1.0 1,400 0.0733 $127,400 $ 9,338

7-23

Exercise 7.26

Price at Market Value Joint Allocated

Units Split-Off at Split-Off Percent Cost Cost

Barlon …… 1,400 $15 $ 21,000 0.0806 $ 127,400 $ 10,268

Selene …… 2,600 20 52,000 0.1996 127,400 25,429

Plicene ….. 2,500 26 65,000 0.2495 127,400 31,786

Exercise 7.27

1. Eventual Separable Hypothetical

Units Price Market Value Costs Market Value Percent

Overs …… 14,000 $2.00 $ 28,000 $18,000 $ 10,000 0.10

2. Value of overs at split-off (14,000 × $1.80) ….. $25,200

Value of overs when processed further ……… $28,000

CPA-TYPE EXERCISES

Exercise 7.28

d.

Allocation ratios:

Producing Department 1 Producing Department 2

Machine hours 8,000/(8,000 + 2,000) = 0.8 2,000/(8,000 + 2,000) = 0.2

Exercise 7.29

Exercise 7.30

c.

Exercise 7.31

d.

Fabricating overhead rate = $140,000/20,000 = $7/machine hour

Assembly overhead rate = $64,000/20,000 = $3.20/direct labor hour

Exercise 7.32

a.

Problem 7.33

1. Yuma Bernalillo

Ratio for fixed costs* ………. 0.65 0.35

2. Costing out services serves the same purposes as costing out tangible prod-

ucts (e.g., pricing, profitability analysis, and performance evaluation). Once

3. If the purpose is to cost out individual services, then the allocation is identi-

cal to that given in Requirement 1.

If the purpose is for performance evaluation, then variable costs equal the

predetermined rate multiplied by the actual usage. The fixed costs are allo-

cated the same way as before.

Yuma Bernalillo

Variable costs:

$65 × 2,580 ………………. $167,700

4. The allocated costs of $431,700 were $3,700 lower than the actual costs of

$435,400, because the producing departments are charged an allocation

Problem 7.34

1. Allocation ratios for fixed costs (uses normal levels):

SLC Reno Portland

Hours of flight time …………. 0.2500 0.5000 0.2500

Variable rates:

Maintenance: $30,000/8,000 = $3.75 per flight hour

SLC Reno Portland

Maintenance—fixed:

(0.2500 × $240,000) ………….. $ 60,000

Maintenance—variable:

($3.75 × 2,000) …………………. 7,500

Baggage—fixed:

(0.3333 × $150,000) ………….. 49,995

Baggage—variable:

($2.1333 × 10,000) ……………. 21,333

Problem 7.34 (Concluded)

2. The allocations are the same as in Requirement 1, except variable costs are

assigned using actual instead of budgeted activity.

SLC Reno Portland

Maintenance—fixed ……………….. $ 60,000 $120,000 $ 60,000

Maintenance—variable:

($3.75 × 1,800) …………………. 6,750

Baggage—fixed ……………………… 49,995 75,000 25,005

Baggage—variable:

($2.1333 × 8,000) ……………… 17,066

Problem 7.35

1.

Proportion of: Pottery Retail

Machine hours ……………………………………………. 0.6900 0.3100

Power:

(0.6900 × $150,000) ……………………………………… $ 103,500

(0.4000 × $160,000) ……………………………………… 64,000

(0.6000 × $160,000) ……………………………………… 96,000

Problem 7.35 (Concluded)

2.

General

Power Factory Pottery Retail

Machine hours — — 0.6900 0.3100

Direct costs ………………… $ 150,000 $160,000 $ 98,000 $ 56,000

General Factory:

(0.1667 × $160,000) …. 26,672 (26,672)

Power:

(0.69 × $176,672) …….. (121,904) 121,904

3.

General

Power Factory Pottery Retail

Machine hours ……………… — 0.0909 0.6273 0.2818

Square footage …………….. 0.1667 — 0.3333 0.5000

GF= $160,000 + 0.0909P P = $150,000 + 0.1667GF

GF= $160,000 + 0.0909($150,000 + 0.1667GF) P = $150,000 + 0.1667($176,315)

Pottery Retail

General Factory:

Power:

(0.6273 × $179,392) …………………. 112,533

Problem 7.36

1. General

Engineering Factory Molding Assembly

Department costs ……………. $ 216,000 $ 370,000 $190,000 $ 80,000

Allocation of:

Engineering (0.2, 0.8) ……… (216,000) 0 43,200 172,800

2.

Engineering General Factory Molding Assembly

Algebraic equations for relationship between service departments

(E = Engineering Department; GF = General Factory Department):

E = $216,000 + 0.2000($370,000 + 0.1667E)

E = $216,000 + $74,000 + 0.0333E

General

Engineering Factory Molding Assembly

Direct overhead costs ….. $ 216,000 $ 370,000 $190,000 $ 80,000

Allocation of:

7-30

Problem 7.36 (Concluded)

3. The direct allocation method ignores any service rendered by one support

department to another. Allocation of each support department’s total cost is

made directly to the production departments. The reciprocal allocation meth-

Problem 7.37

1.

Barrels Percent × Joint Cost = Allocated Joint Cost

Two Oil ……….. 300,000 0.5455 $10,900,000 $ 5,945,950

2.

Price at Market Value Joint Allocated

Barrels Split-Off at Split-Off Percent Cost Cost

Two Oil ….. 300,000 $45 $ 13,500,000 0.7154 $10,900,000 $7,797,860

7-31

Problem 7.38

1. Ruidoso ($420,000/$2,800,000 × $223,000) = $33,450

Roswell ($588,000/$2,800,000 × $223,000) = 46,830

2. Share of Accounting Department fixed costs based on 2014 sales:

Ruidoso ($405,000/$2,700,000 × $135,000) = $20,250

Roswell ($540,000/$2,700,000 × $135,000) = 27,000

3. The method in Requirement 2 is better because it ties cost allocated to the

driver that causes the cost. Thus, managers would be more likely to use Ac-

7-32

Problem 7.39

1.

a. Relative sales-value-at-split-off method:

Monthly Sales Relative Percent Allocated

Unit Price Sales Value of Joint

Output per Unit at Split-Off Sales Costs

Studs …………………. 75,000 $ 8 $ 600,000 46.15% $ 461,500

Decorative pieces .. 5,000 60 300,000 23.08 230,800

b. Physical units (volume) method at split-off:

Allocated

Units Percent × Joint Cost = Joint Costs

Studs …………………. 75,000 0.750 $1,000,000 $ 750,000

c. Estimated net realizable value method:

Fully

Processed Sales Estimated

Monthly Price Net Percent Allocated

Unit per Realizable of Joint

Output Unit Value Value Costs

Studs ………………….. 75,000 $ 8 $ 600,000 44.44% $ 444,400

7-33

Problem 7.39 (Concluded)

2. Monthly unit output ……………………………………………….. 5,000

Less: Normal further processing shrinkage ……………. 500

Units available for sale ……………………………………… 4,500

3. Assuming Sonimad Sawmill, Inc., announces that in six months it will sell the

rough-cut product at split-off, due to increasing competitive pressure, at least

three types of likely behavior that will be demonstrated by the skilled labor in

the planing and sizing process include the following:

• Poorer quality

• Reduced motivation and morale

7-34

Problem 7.40

1. Clearly, some expenses pertain to women living in the house, while others

pertain to all members. In-house members use the second floor, most of the

food, and most of the variable expenses. All members use the first floor facili-

2. Using a benefits-received approach, the following charging rates might be

applied.

In-house members:

Use of second floor ($240,000 – $40,000)/2 ………… $ 100,000

Charging rate per in-house member per year: $233,584/60 = $3,893

Out-of-house members:

CYBER RESEARCH CASE

7.41

Answers will vary.

The Collaborative Learning Exercise Solutions can be found on the

7-35

The following problems can be assigned within CengageNOW and are auto-

graded. See the last page of each chapter for descriptions of these new assign-

ments.

• Integrative Problem—Job Order Costing, Support Department Allocation, Rele-

vant Costing (Covering chapters 5, 7, and 17)

• Integrative Problem—Job Costing, Joint Costs, Process Costing, Decentraliza-