Question 1

Consider the following statements about the step-down method of service department cost allocation:

1.Under the step-down method, all service department costs are eventually allocated to production departments.

2.The order in which service department costs are allocated is important.

3.After a service department's costs have been allocated to other departments, no costs are re-circulated back to that service department.

Which of the above statements is (are) correct?

I, II, and III.

I and II.

I only.

I and III.

II only.

Question 2

Aldo Industries, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows. Human Resources

6,000

Building Maintenance

13,000

Machining

18,000

Assembly

26,000

Assuming use of the direct method, over how many square feet would the Building Maintenance cost be allocated (i.e., spread)?

44,000.

More information is needed to judge.

63,000.

19,000.

50,000.

Question 3

Rave Reviews Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Cafeteria

40

Human Resources

60

Machining

200

Assembly

300

Rave Reviews uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,800,000, how much of the department's cost would be allocated to Assembly?

None of the answers is correct.

$720,000.

$1,080,000.

$900,000.

$1,200,000.

Question 4

Marshall Welding Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Cafeteria

20

Human Resources

30

Machining

100

Assembly

150

Marshall Welding uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Machining?

$444,444.

$428,572.

None of the answers is correct.

$480,000.

$0.

Question 5

The Buckaneer Clinic has two service departments (Human Resources and Information Resources) and two "production" departments (In-patient Treatment and Out-patient Treatment). The service departments service the "production" departments as well as each other, and studies have shown that Information Resources provides the greater amount of service. Which of the following allocations would occur if Buckaneer uses the direct method of cost allocation?

In-patient Treatment cost would be allocated to Out-patient Treatment.

Information Resources cost would be allocated to In-patient Treatment.

Human Resources cost would be allocated to Information Resources.

Information Resources cost would be allocated to Human Resources.

Out-patient Treatment cost would be allocated to Information Resources.

Question 6

Soprano Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. Department 1

Department 2

Total

Short-run usage (hours)

80,000

120,000

200,000

Long-run usage (hours)

90,000

110,000

200,000

If Soprano uses dual-cost accounting procedures and fixed administrative costs total $1,000,000, the amount of fixed administrative costs to allocate to Department 1 would be:

$450,000.

$850,000.

$400,000.

$500,000.

None of the answers is correct.

Question 7

Which of the following methods should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product?

Relative-sales-value method.

Reciprocal-accounting method.

Physical-units method.

Gross margin at split-off method.

Net-realizable-value method.

Question 8

Ramos Corporation uses the physical-units method to allocate costs among its three joint products: X, Y, and Z. The following data are available for the period just ended:

Joint processing cost: $800,000

Total production: 150,000 pounds

Share of joint cost allocated to X: $160,000

Share of joint cost allocated to Y: $400,000

Which of the following statements is true?

Ramos produced 30,000 pounds of Z during the period.

Based on the data presented, it is not possible to determine Ramos' production of Z during the period.

Ramos produced 105,000 pounds of Z during the period.

The company would have relied on the sales value of each product when allocating joint costs to X, Y, and Z.

Ramos produced 45,000 pounds of Z during the period.

Question 9

Bulldog Canyon Manufacturing produces three products from a joint process. The following information is available for the period just ended: BDC-4

BDC-5

BDC-6

Total

Units produced

10,800

25,200

54,000

90,000

Joint cost allocation

?

$

33,120

?

$

144,000

Sales value at split-off

$

187,200

?

?

$

468,000

Assume that Bulldog Canyon allocates joint costs using the relative-sales-value method. What is the amount of joint cost allocation to BDC-4?

$17,280.

$53,280.

Not enough information is provided to determine how to allocate the joint cost.

$48,000.

$57,600.

Question 10

Hsu Company manufactures two products (A and B) from a joint process that cost $200,000 for the year just ended. Each product may be sold at the split-off point or processed further. Additional processing requires no special facilities, and production costs of further processing are entirely variable and traceable to the products involved. Further information follows. If Processed Further

Product

Pounds Produced

Per-Pound

Sales

Price

Sales

Value

Separable

Cost

A

20,000

$

12

$

350,000

$

90,000

B

30,000

8

300,000

60,000

If the joint costs are allocated based on the net-realizable-value method, the amount of joint cost assigned to product A would be:

$107,692.

None of the answers is correct.

$100,000.

$120,000.

$104,000.