Question
Jakes Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities
Jakes Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities are supported by the Maintenance and Security activities. Security costs are allocated to the production activities based on asset value. Maintenance costs are normally allocated based on machine hours. However, Maintenance costs typically correlate more with the number of service calls. Information regarding the activities is provided in the following table:
Line Item Description | Maintenance | Security | Mining | Cutting |
---|---|---|---|---|
Number of service calls | 17 | 20 | 60 | 20 |
Machine hours | 89 | 88 | 182 | 176 |
Asset value | $200,000 | $80,000 | $120,000 | $480,000 |
Department cost | $25,000 | $42,500 | $160,000 | $95,000 |
1. Is the process of allocating maintenance costs based on machine hours correct? Identify the measure than can possibly be used to allocate the maintenance costs.
YesNoNo
Measures that can possibly be used to allocate the maintenance costs. a. Number of service calls b. Asset value c. Department cost d. None of the above
abcda
2. Based on your response to part (1), determine the total costs allocated from each support activity to the other activities using the reciprocal services method and the most appropriate cost driver for Maintenance.
Line Item Description | Maintenance Department | Security Department | Mining Department | Cutting Department |
---|---|---|---|---|
Maintenance cost allocation | $fill in the blank 3 | $fill in the blank 4 | $fill in the blank 5 | |
Security cost allocation | $fill in the blank 6 | $fill in the blank 7 | $fill in the blank 8 | |
Production activities total costs | $fill in the blank 9 | $fill in the blank 10 |
3. Assume Jakes Gems is considering cutting costs by switching to a simpler support activity cost allocation method. Determine the total costs allocated from each support activity to the other activities.
Particulars | Mining Department | Cutting Department |
---|---|---|
Maintenance cost | $fill in the blank 11 | $fill in the blank 12 |
Security cost | $fill in the blank 13 | $fill in the blank 14 |
Production activities total cost | $fill in the blank 15 | $fill in the blank 16 |
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