Deck 11: Service Department and Joint Cost Allocation

Question 1

In deciding whether to outsource a service department or not, the cost of the service department should be estimated using the step method of allocation.

Answer 1

False

Question 2

The step method allocates some, but not all, service department costs to other service departments.

Answer 2

True

Question 3

Joint costs are processing costs incurred after the split-off point in a common production process.

Answer 3

False

Question 4

With the reciprocal method, the total service department costs less the direct costs of the service department equal the cost allocated to the service department.

Question 5

Joint products are outputs from common inputs and a common production process.

Question 6

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

Question 7

In a sell-or-process-further decision, the additional costs incurred after the split-off point are irrelevant.

Question 8

One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization's service departments.

Question 9

The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales.

Question 10

In general, it is better to use a product's market value at the split-off point than its estimated net realizable value in allocating joint costs.

Question 11

One advantage of the step method is that all reciprocal services are recognized between service departments.

Question 12

The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.

Question 13

Since by-products have minor sales value, alternative methods of accounting for them will not have a material effect on the financial statements.

Question 14

The human resource department in a manufacturing company would be considered a service department.

Question 15

In a sell-or-process-further decision, the common costs incurred prior to the spilt-off point are irrelevant.

Question 16

If a company's two joint products can be sold at the split-off point, there is no reason for allocating the joint costs to the products.

Question 17

The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile.

Question 18

One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs.

Question 19

The direct method makes no cost allocations between or among service departments.

Question 20

The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.

Question 21

Veneer Company has two service departments and two producing departments. The number of employees in each department is:
$\begin{array}{lr}\text { Personnel } & 10 \\\text { Cafeteria } & 25 \\\text { Producing Department A } & 265 \\\text { Producing Department B } & \underline{ 250} \\&\underline{550}\end{array}$

The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated (rounded to two decimal places) to Department B under the direct method would be:

A) $0.
B) $17,187.50.
C) $16,875.00.
D) $18,021.84.

Question 22

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred:
Computer services (85% fixed) $ 260,000
Building occupancy 600,000
Personnel costs 110,000
Total common costs $ 970,000
The following information is available concerning various activity measures and service usages by each of the divisions:
$\begin{array}{lrr}\text { Area occupied (square feet) } & 20,000 & 40,000 \\\text { Payroll } & \$ 380,000 & \$ 180,000 \\\text { Computer time (hours) } & 200 & 220 \\\text { Computer storage (megabytes) } & 4,050 & -0- \\\text { Equipment value } & \$ 200,000 & \$ 250,000 \\\text { Operating profit (pre-allocations) } & \$ 555,000 & \$ 495,000\end{array}$

-
If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B (rounded to the nearest whole dollar)?

A) $457,286.
B) $512,714.
C) $555,000.
D) $1,087,576.

Question 23

Service department costs are allocated to user departments, in part, because:

A) it measures the use of plant capacity.
B) it helps ensure that machines are operating efficiently.
C) user departments use the functions of service departments.
D) service departments are final cost centers.

Question 24

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred:
Computer services (85% fixed) $ 260,000
Building occupancy 600,000
Personnel costs 110,000
Total common costs $ 970,000
The following information is available concerning various activity measures and service usages by each of the divisions:
$\begin{array}{lrr}\text { Area occupied (square feet) } & 20,000 & 40,000 \\\text { Payroll } & \$ 380,000 & \$ 180,000 \\\text { Computer time (hours) } & 200 & 220 \\\text { Computer storage (megabytes) } & 4,050 & -0- \\\text { Equipment value } & \$ 200,000 & \$ 250,000 \\\text { Operating profit (pre-allocations) } & \$ 555,000 & \$ 495,000\end{array}$


-
If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B (rounded to the nearest whole dollar)?

A) $136,190.
B) $137,647.
C) $144,444.
D) $173,333.

Question 25

Service department costs are:

A) Generally treated as period costs rather than product costs.
B) Reported as selling and administrative expenses on the income statement.
C) Eventually applied by the user departments to the units produced.
D) Seldom found in manufacturing organizations.

Question 26

Jamison Company has two service departments and two producing departments. Square footage of space occupied by each department follows:
$\begin{array}{lr}\text { Custodial services } & 1,000 \mathrm{feet} \\\text { General administration } & 3,000 \mathrm{feet} \\\text { Producing Department A } & 8,000 \mathrm{feet} \\\text { Producing Department B } &\underline{ 8,000 \mathrm{feet} }\\ &\underline{ 20,000 \mathrm{feet}}\end{array}$
The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General Administration under the direct method would be:

A) $0.
B) $7,125.
C) $6,000.
D) $5,700.

Question 27

Which of the following departments is not a service department in a typical manufacturing company?

A) Assembly.
B) Accounting.
C) Human resources.
D) Information processing.

Question 28

Dreamland University has 20 departments. Two of its best departments are the (1) College of Innovation (COI) and (2) Testing Services. The College of Innovation (COI) attempts to teach students the difficult, but useful, skill of innovation. Testing Services grades examinations for professors. How would these two departments be classified?
$\begin{array} { c c c } & \text { College of Innuvatimn } & \text { Testing Services } \\\end{array}$

A) $\begin{array} {c c c } &&&& \text { Service } &&&&& \text { Service } \\\end{array}$
B) $\begin{array} {c c c} &&&& \text { User } &&&&&& \text { Service } \\\end{array}$
C) $\begin{array} { c c c} &&&& \text { User } &&&&&& \text { User } \\\end{array}$
D) $\begin{array} {c c c} &&&& \text { Service } &&&&& \text { User } \\\end{array}$

Question 29

Which of the following is the least practical reason for allocating service department costs to user departments?

A) To ascertain profitability of user departments.
B) To evaluate performance of managers and divisions.
C) To make user departments aware that services are costly.
D) To provide the best possible service to users.

Question 30

Which of the following best describes final cost centers?

A) Any cost center whose costs are not allocated to another cost center.
B) Service departments are always final cost centers.
C) User departments cannot be final cost centers.
D) Any cost center whose costs are charged to other departments in an organization.

Question 31

Which of the following methods provides no data for service departments to monitor each other's costs?

A) Direct method.
B) Reciprocal method.
C) Step method.
D) All three methods, Direct, Step and Reciprocal, provide data for monitoring costs.

Question 32

Criteria for selecting allocation bases for service department allocations should not include:

A) Direct, traceable benefits from the service.
B) The extent of facilities provided.
C) The ease of making an allocation.
D) Sales dollars generated during the period.

Question 33

Which of the following best describes intermediate cost centers?

A) Any cost center whose costs are not allocated to another cost center.
B) Service departments cannot be intermediate cost centers.
C) User departments cannot be intermediate cost centers.
D) Any cost center whose costs are charged to other departments in an organization.

Question 34

Which of the following is not a benefit of cost allocation?

A) Instilling responsibility for all costs of the company in division managers.
B) Constructing performance measures that may be more meaningful than contribution margins.
C) Relating indirect costs to contracts, jobs and products.
D) Additional bookkeeping costs incurred to provide cost allocation information.

Question 35

Which of the following service departments could logically use space occupied (square footage) to allocate its costs to user departments?

A) Material Handling.
B) Cafeteria.
C) Custodial Services.
D) Cost Accounting.

Question 36

Tenet Engineering, Inc. operates two user divisions as separate cost objects. To determine the costs of each division, the company allocates common costs to the divisions. During the past month, the following common costs were incurred:
Computer services (85% fixed) $ 260,000
Building occupancy 600,000
Personnel costs 110,000
Total common costs $ 970,000
The following information is available concerning various activity measures and service usages by each of the divisions:
$\begin{array}{lrr}\text { Area occupied (square feet) } & 20,000 & 40,000 \\\text { Payroll } & \$ 380,000 & \$ 180,000 \\\text { Computer time (hours) } & 200 & 220 \\\text { Computer storage (megabytes) } & 4,050 & -0- \\\text { Equipment value } & \$ 200,000 & \$ 250,000 \\\text { Operating profit (pre-allocations) } & \$ 555,000 & \$ 495,000\end{array}$


-
Using the most appropriate allocation basis, what is the personnel cost allocated to Division A (rounded to the nearest whole dollar)?

A) $58,143.
B) $74,643.
C) $76,463.
D) $110,000.

Question 37

Which of the following would be an appropriate cost-allocation base for allocating the cost of the company cafeteria?

A) Square footage occupied by departments.
B) Number of hours of use.
C) Number of meals served.
D) Salaries of personnel purchasing meals.

Question 38

Which of the following statements is(are) false regarding the direct method of allocating service department costs?
(A) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.
(B) Once an allocation is made from a service department using the direct method, no further allocations are made back to that department.

A) Only A is false.
B) Only B is false.
C) Neither of these is false.
D) Both of these are false.

Question 39

Which of the following is not a reason to justify the allocation of support services?

A) Tax reporting requirements.
B) Influencing behavior of employees.
C) To trace costs to the activity that created the costs.
D) Cost based contracts.

Question 40

A management purpose for allocating joint costs of a processing center to the various products produced is to:

A) Establish inventory values for unsold units.
B) Record accurate cost of sales by product line.
C) Compute total processing cost variances by product.
D) Report correct standard product costs for comparative analysis.

Question 41

There are several methods for allocating service department costs to production departments. The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted)

A) Direct method.
B) Variable method.
C) Linear method.
D) Step method.

Question 42

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$

-
Under the step method of cost allocation, the amount of S2 costs allocated to S1 would be:

A) $40,000.
B) $20,000.
C) $0.
D) $42,000.

Question 43

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.
$$\begin{array} { | l | r | r | r | r | } \hline & \text { Maintenmes } & \text { Accounting } & \text { A } & \text { B } \\\hline \text { Machine hours } & 480 & 20 & 2,300 & 200 \\\hline \text { Number of employees } & 2 & 2 & 8 & 4 \\\hline\end{array}$$

-
What is the Maintenance Department's cost allocated to Department A using the direct method?

A) $92,000.
B) $230,000.
C) $276,000.
D) $386,400.

Question 44

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$

-
Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be:

A) $42,000.
B) $20,000.
C) $0.
D) $6,000.

Question 45

If two service departments service the same number of departments, which service department's costs should be allocated first when using the step method?

A) The service department that provides the most service to other service departments.
B) The service department that provides the most service to the user departments.
C) The service department with the least cost.
D) The service department that provides the least service to other service departments.

Question 46

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.
$$\begin{array} { | l | r | r | r | r | } \hline & \text { Maintenmes } & \text { Accounting } & \text { A } & \text { B } \\\hline \text { Machine hours } & 480 & 20 & 2,300 & 200 \\\hline \text { Number of employees } & 2 & 2 & 8 & 4 \\\hline\end{array}$$


-
What is the cost of the Accounting Department's cost allocated to Department A (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first?

A) $81,333.
B) $81,587.
C) $80,000.
D) $68,571.

Question 47

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.
$$\begin{array} { | l | r | r | r | r | } \hline & \text { Maintenmes } & \text { Accounting } & \text { A } & \text { B } \\\hline \text { Machine hours } & 480 & 20 & 2,300 & 200 \\\hline \text { Number of employees } & 2 & 2 & 8 & 4 \\\hline\end{array}$$


-
What is the Accounting Department's cost allocated to Department B using the direct method?

A) $40,000.
B) $80,000.
C) $20,000.
D) $10,000.

Question 48

Palace Company has two service departments and two user departments. The number of employees in each department is:
$$\begin{array} { l r } \text { Personnel } & 10 \\\text { Cafeteria } & 25 \\\text { Producing Department A } & 265 \\\text { Producing Department B } & 250 \\&550\end{array}$$
The fixed costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to the Cafeteria under the step method would be:

A) $0.
B) $1,718.75.
C) $1,687.50.
D) $1,802.18.

Question 49

The following information relates to Osceola Corporation for the past accounting period.
$$\begin{array} { l r } & \text { Direct costs } \\\text { Service Department A } & \$ 80,000 \\\text { Service Department B } & 60,000 \\\text { Producing Department C } & 15,006 \\\text { Producing Department D } & 20,000\end{array}$$
$$\begin{array}{l}\text { Propartion of sernceby } A \text { to: }\\\mathrm { B } & 10 \% \\\mathrm { C } & 60 \% \\\mathrm { D } & 30 \%\end{array}$$
$$\begin{array} { l l } \text { Proportion of service by B to: } \\\text { A } & 30 \% \\\text { C } & 20 \% \\\text { D } & 50 \%\end{array}$$

-
Using the reciprocal (simultaneous solution) method, Department B's cost allocated to Department C (rounded to the nearest whole dollar) is:

A) $29,021
B) $14,021
C) $13,192
D) $7,794

Question 50

The following information relates to Osceola Corporation for the past accounting period.
$$\begin{array} { l r } & \text { Direct costs } \\\text { Service Department A } & \$ 80,000 \\\text { Service Department B } & 60,000 \\\text { Producing Department C } & 15,006 \\\text { Producing Department D } & 20,000\end{array}$$
$$\begin{array}{l}\text { Propartion of sernceby } A \text { to: }\\\mathrm { B } & 10 \% \\\mathrm { C } & 60 \% \\\mathrm { D } & 30 \%\end{array}$$
$$\begin{array} { l l } \text { Proportion of service by B to: } \\\text { A } & 30 \% \\\text { C } & 20 \% \\\text { D } & 50 \%\end{array}$$

-
Using the reciprocal (simultaneous solution) method, Department A's cost allocated to Department C (rounded to the nearest whole dollar) is:

A) $48,000.
B) $58,800.
C) $60,619.
D) $98,000.

Question 51

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$

-
Under the direct method of cost allocation, the amount of S1 costs allocated to P1 would be:

A) $20,000.
B) $6,000.
C) $30,000.
D) $62,500.

Question 52

Because this allocation method recognizes that service departments often provide each other with interdepartmental service, it is theoretically considered to be the most accurate method for allocating service department costs to production departments. This method is: (CMA adapted)

A) Direct method.
B) Variable method.
C) Linear method.
D) Reciprocal method.

Question 53

The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes. There are two manufacturing departments, finishing and assembly, and four service departments labeled S1, S2, S3, and S4. Information relevant to Maryville is as follows:

Rent paid for the area used is $720,000.

-
How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?

A) $36,000.
B) $40,000.
C) $54,000.
D) $90,000.

Question 54

Steven Parker owns and operates Steven's Septic Service and Legal Advice. Steven's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases:
Clerical:
Variable cost: expected number of work orders processed
Fixed cost: long-run average number of work orders processed
Janitorial:
Variable cost: labor hours
Fixed cost: square footage of space occupied
Average and expected activity levels for next month (June) are as follows:
$\begin{array}{|l|r|r|r|r|}\hline &\text { No. of Work Orders } & \text {Averge } & \text { Labor Hours } & \text { Square Footage } \\&\text { Expected }\\\hline \text { Septic Service } & 50 & 80 & 560 & 1,800 \\\hline \text { Legal advice } & 25 & 20 & 840 & 2,200 \\\hline \text { Clerical } & 20 & 20 & 400 & 1,600 \\\hline \text { Janitorial } & 5 & 20 & 200 & 1,000 \\\hline\end{array}$
Expected costs in the service departments for June are as follows:
$$\begin{array} { l r r } & \text { Clerical } & \text { Janitorial } \\\text { Variable costs } & \$ 12,000 & \$ 4,200 \\\text { Fixed costs } & \$ 8,400 & \$ 800\end{array}$$

-
Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)

A) $6,231.
B) $7,720.
C) $8,640.
D) $9,330.

Question 55

The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes. There are two manufacturing departments, finishing and assembly, and four service departments labeled S1, S2, S3, and S4. Information relevant to Maryville is as follows:

Rent paid for the area used is $720,000.

-
How much rent is allocable to the assembly department using the direct method of allocation?

A) $420,000.
B) $332,500.
C) $300,000.
D) $252,000.

Question 56

Steven Parker owns and operates Steven's Septic Service and Legal Advice. Steven's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases:
Clerical:
Variable cost: expected number of work orders processed.
Fixed cost: long-run average number of work orders processed.
Janitorial:
Variable cost: labor hours.
Fixed cost: square footage of space occupied.
Average and expected activity levels for next month (June) are as follows:
$\begin{array}{|l|r|r|r|r|}\hline &\text { No. of Work Orders } & \text {Averge } & \text { Labor Hours } & \text { Square Footage } \\&\text { Expected }\\\hline \text { Septic Service } & 50 & 80 & 560 & 1,800 \\\hline \text { Legal advice } & 25 & 20 & 840 & 2,200 \\\hline \text { Clerical } & 20 & 20 & 400 & 1,600 \\\hline \text { Janitorial } & 5 & 20 & 200 & 1,000 \\\hline\end{array}$
Expected costs in the service departments for June are as follows:
$$\begin{array} { l r r } & \text { Clerical } & \text { Janitorial } \\\text { Variable costs } & \$ 12,000 & \$ 4,200 \\\text { Fixed costs } & \$ 8,400 & \$ 800\end{array}$$

-
Under the step method of allocation, how much Clerical Service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)

A) $12,689.
B) $13,100.
C) $13,620.
D) $15,596.

Question 57

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$

-
Under the step method of allocation, the total amount of service costs allocated to producing departments would be:

A) $118,000.
B) $160,000.
C) $140,000.
D) $40,000.

Question 58

Which of the following is a weakness of the step method of service cost allocations?

A) Computations are more complex than the reciprocal method.
B) All interdepartmental services are ignored.
C) All intradepartmental services are ignored.
D) The order of service department allocation has to be determined.

Question 59

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$

-
Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be:

A) $88,750.
B) $50,000.
C) $62,500.
D) $53,250.

Question 60

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.
$$\begin{array} { | l | r | r | r | r | } \hline & \text { Maintenmes } & \text { Accounting } & \text { A } & \text { B } \\\hline \text { Machine hours } & 480 & 20 & 2,300 & 200 \\\hline \text { Number of employees } & 2 & 2 & 8 & 4 \\\hline\end{array}$$


-
What is the Maintenance Department's cost allocated to Department B (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first?

A) $276,000.
B) $230,000.
C) $322,000.
D) $23,810.

Question 61

Which of the following is not a step needed to maximize the profits from joint products?

A) Forecasting the sales price of each final product.
B) Identifying alternative sets and quantities of final products possible from the joint process.
C) Determining how to allocate joint costs to the final products.
D) Estimating the costs required to further process joint products into salable products.

Question 62

Net realizable value at the split-off point is used to allocate:
$\begin{array} {cc } & \text { Costs After Split-off Point } & \text { Incurred Joint Costs } \\\end{array}$
A. $\begin{array} {cc } &&&&& \text { No } &&&&&&&&&& \text { No } \\\end{array}$
B. $\begin{array} {cc } &&&&& \text { No } &&&&&&&&&& \text { Yes } \\\end{array}$
C. $\begin{array} {cc } &&&&& \text { Yes } &&&&&&&&&& \text { No } \\\end{array}$
D. $\begin{array} {cc } &&&&& \text { Yes } &&&&&&&&&& \text { Yes } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 63

For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the: (CPA adapted)

A) Total costs.
B) Joint costs.
C) Sales price less a normal profit margin at point of sale.
D) Net realizable value at split-off.

Question 64

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \$ 5 5 0 , 0 0 0& \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S 1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.


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The equation for department S1 (building occupancy) is:

A) S1 = 0.10S3.
B) S1 = $85,000 + 1.00S3.
C) S1 = $85,000 + 0.10S3.
D) S1 = $85,000 + 0.90S2 + 0.10S3.

Question 65

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { DepartMent } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } &5 5 0 , 0 0 0 & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text { S 1 } \\\text { Research \& development } & 120,000 & \text { S 2 } \\\text { Supervision } & 45,000 & \text { S 3 }\end{array}$$
Use of services by other departments is as follows.


-
The equation for department P1 (subassemblies) is:

A) P1 = $550,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
B) P1 = $550,000 + 0.30S1 + 0.50S2 + 0.20S3.
C) P1 = 0.30S1 + 0.50S2 + 0.20S3.
D) P1 = 0.30S1 + 0.50S.

Question 66

Which of the following statements is false?

A) The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.
B) In general, it is better to use a product's market value at the split-off point than its estimated net realizable value.
C) The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.
D) It is better to use the net realizable value method for allocating joint costs than the estimated net realizable value method.

Question 67

Which of the following best describes the objective of joint cost allocation?

A) Inventory valuation.
B) Pricing goods for sale.
C) Making decisions about levels of production.
D) Making decisions about raw materials requirements.

Question 68

Allocated joint costs are useful for:

A) Setting the selling price of a product.
B) Determining whether to continue producing an item.
C) Controlling user department costs.
D) Determining inventory cost for accounting purposes.

Question 69

Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?

A) Direct materials.
B) Variable overhead.
C) Direct labor.
D) Freight-out.

Question 70

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \$ { 5 5 0 , 0 0 0 } & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S 1 } \\\text { Research \& development } & 120,000 & \text {S2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.


-
The equation for department S2 (research and development) is:

A) S2 = $120,000 + 0.15S1 + 0.65S2 + 0.20S3.
B) S2 = 0.15S1 + 20S3.
C) S2 = $120,000 + 0.15S1 + 0.20S3.
D) S2 = $120,000 + 0.40S1 + 0.60S3.

Question 71

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \${ 5 5 0 , 0 0 0 } & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S 1 } \\\text { Research \& development } & 120,000 & \text {S2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.


-
The equation for department S3 (supervision) is:

A) S3 = $45,000 + 0.90S1 + 0.10S2.
B) S3 = $45,000 + 0.10S1.
C) S3 = $45,000 + 1.00S1.
D) S3 = 0.10S1.

Question 72

Which of the following statements about maximizing the profit of joint product processes is true?

A) Joint processing costs incurred prior to split-off should be allocated before making those decisions.
B) Only additional expenditures for further processing are relevant.
C) Only revenues from selling or processing beyond the split-off point are relevant.
D) Revenues from selling or processing beyond the split-off point and additional expenditures for further processing are relevant.

Question 73

For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to:

A) Final sales price reduced by cost to complete after split-off.
B) Sales price less a normal profit margin at the point of sale.
C) Separable product cost plus a normal profit margin.
D) Total sales value less joint costs at point of split-off.

Question 74

Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, and Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?

A) $21.67.
B) $31.20.
C) $40.00.
D) $42.00.

Question 75

Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs.
The percentage of each service used by each department for a typical period is:
$\begin{array}{c}\quad\quad\quad\quad\quad\quad\text { Supplied }\\\begin{array}{lll}\text { User } & \text { Op } & P \\\text { Op } & --- & 40 \% \\\text { P } & 30 \% & --- \\\text { Sold to customers } & 70 \% & 60 \%\end{array}\end{array}$
In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500.

-
Under the step method (Op first), what is the cost of the computer time and the computer programs for sale?
$\begin{array} {cc} & \text { Time } & { \text { Programs } } \\\end{array}$
A. $\begin{array} {cc} & \$ 4,500 & \$ 2,500 \\\end{array}$
B. $\begin{array} {cc} & \$ 3,150 & \$ 3,850 \\\end{array}$
C. $\begin{array} {cc} & \$ 1,350 & \$ 5,650 \\\end{array}$
D. $\begin{array} {cc} & \$ 2,700 & \$ 4,300\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 76

The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the:

A) Replacement method.
B) Physical quantities method.
C) Net realizable value method.
D) Units produced method.

Question 77

Advanced Computer Solutions, Inc. has two main services: (1) time on a timeshared computer system, and (2) proprietary computer programs. The operation department (Op) provides computer time and the programming department (P) writes programs.
The percentage of each service used by each department for a typical period is:
$\begin{array}{c}\quad\quad\quad\quad\quad\quad\text { Supplied }\\\begin{array}{lll}\text { User } & \text { Op } & P \\\text { Op } & --- & 40 \% \\\text { P } & 30 \% & --- \\\text { Sold to customers } & 70 \% & 60 \%\end{array}\end{array}$
In a typical period, the operation department (Op) spends $4,500 and the programming department (P) spends $2,500.

-
Under the reciprocal method what is the algebraic solution to the cost allocation problem?

A) Op = $4,500 + 0.40P; P = $2,500 + 0.30Op.
B) Op = $4,500 + 0.70P; P = $2,500 + 0.60Op.
C) Op = $2,500 + 0.40P; P = $4,500 + 0.30Op.
D) Op = $2,500 + 0.70P; P = $4,500 + 0.60Op.

Question 78

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } & \$ 5 5 0 , 0 0 0 & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S 3 }\end{array}$$
Use of services by other departments is as follows.


-
The equation for department P3 (marketing) is:

A) P3 = $285,000 + 0.20S1 + 0.20S3.
B) P3 = $285,000 + 0.20S1 + 0.60S2 + 0.20S3.
C) P3 = $285,000 + 0.20S1 + 0.20S2 + 0.60S3.
D) P3 = $285,000 + 0.50S1 + 0.50S3.

Question 79

Bonanza Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows: $\begin{array}{lrrrr}&&\text { PRODUCTS }\\&\mathrm{X} & \mathrm{Y} & \mathrm{Z} & \text { TOTAL }\\\text { Units produced } & 20,000 & 20,000 & 10,000 & 50,000 \\\text { Joint costs } & ? & ? & ? & \$ 262,000 \\\text { Sales value at split-off } & \$ 300,000 & \$ 150,000 & \$ 10,000 & \$ 460,000\end{array}$ Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were

A) $75,000.
B) $100,800.
C) $150,000.
D) $168,000.

Question 80

The following is a system of simultaneous linear equations to allocate costs using the reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service departments in Westmoreland Company.
$$\begin{array} { l c c } \text { Department } & \text { Direct Costs } & \text { Label } \\\text { Subassemblies } &\$ 5 5 0 , 0 0 0 & \text { P1 } \\\text { Final assembly } & 775,000 & \text { P2 } \\\text { Marketing } & 285,000 & \text { P3 } \\\text { Building occupancy } & 85,000 & \text {S1 } \\\text { Research \& development } & 120,000 & \text {S 2 } \\\text { Supervision } & 45,000 & \text {S3 }\end{array}$$
Use of services by other departments is as follows.


-
The equation for department P2 (final assembly) is:

A) P2 = 0.25S1 + 0.50S2 + 0.30S3.
B) P2 = $775,000 + 0.25P2 + 0.20P3 + 0.15S2 + 0.10S3.
C) P2 = $775,000 + 0.30S1 + 0.50S2 + 0.20S3.
D) P2 = $775,000 +0.25S1 + 0.50S2 + 0.30S3.