Deck 14: Period Cost Allocation

Question 1

The narrower the scope of service provided by,for example,R&D,the more important it is to allocate costs proportionately to the benefits received by the internal users.

Answer 1

False

Question 2

Which of the following criteria subsidizes poor performers at the expense of the best performers?

A)ability to bear
B)benefit received
C)causality
D)fairness and equity
E)benefits expended

Answer 2

A

Question 3

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

Answer 3

False

Question 4

The costs of designing and implementing sophisticated cost allocation systems are usually not very visible.

Question 5

To encourage the design of products that are simpler to manufacture or less costly to service,would be an example of which cost allocation purpose?

A)to provide information for economic decisions
B)to motivate managers and employees
C)to determine employees' wages
D)to measure income and assets for reporting to external parties
E)to justify costs or compute reimbursements

Question 6

Full product costing requires the recovery of all costs generated by all business functions in the value chain.

Question 7

Which of the following is the first step in the cost-allocation decision process?

A)Calculate the cost-allocation rate for each indirect cost pool.
B)Identify the purpose of the cost allocation.
C)Identify the direct inputs that are already measured.
D)Identify the relevant indirect costs included in the cost pool(s)or numerator(s).
E)Analyze the alternatives and select the best one for the denominator.

Question 8

The allocation of one particular cost must satisfy all four justifications of cost allocation.

Question 9

Which of the following is TRUE concerning cost allocation in a multi-product company?

A)Where the indirect costs are variable and each product is assembled sequentially,the causality criterion can guide the choice of a cost allocation base.
B)Where the indirect costs are fixed and each product is assembled sequentially,the causality criterion can guide the choice of a cost allocation base.
C)Where the indirect costs are variable and each product is not assembled sequentially,the causality criterion can guide the choice of a cost allocation base.
D)Where the indirect costs are fixed and each product is not assembled sequentially,the causality criterion can guide the choice of a cost allocation base.
E)Where the indirect costs are fixed and the products are produced jointly,it is possible to identify specific cause-and-effect relationships between work on an individual product and total costs incurred.

Question 10

Deciding whether to make a component part or to purchase it,would be an example of which cost allocation purpose?

A)to provide information for economic decisions
B)to motivate managers
C)to determine employee's wages
D)to measure income and assets for reporting to external parties
E)to motivate employees

Question 11

Which of the following is NOT a common criteria used to guide decisions related to cost allocations?

A)ability to bear
B)benefit received
C)causality
D)fairness and equity
E)stable market prices

Question 12

Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services?

A)to provide information for economic decisions
B)to motivate managers and other employees
C)to justify costs
D)to measure income and assets for reporting to external parties
E)to compute reimbursement

Question 13

The belief that a corporate division with higher sales ought to be allocated more of the company's advertising costs because it must have derived more benefit from the expenditures than a division with lower sales,is an example of which criteria for cost allocation decisions?

A)ability to bear
B)benefits expended
C)causality
D)fairness and equity
E)benefit received

Question 14

Indirect costs typically constitute a large percentage of the costs assigned to cost objects.

Question 15

If one is willing to put in the time and expense,it is always possible to identify the specific cause-and-effect relationship needed for a cost allocation base.

Question 16

One of the purposes of allocating indirect costs is to justify costs or compute reimbursement amounts.

Question 17

When using the causality criterion,cost drivers are selected based on a cause-and-effect relationship between the business functions.

Question 18

For the economic decision purpose

A)the costs in all six business functions should be included.
B)costs for only one function is included.
C)period costs are not allocated.
D)costing is only related to product pricing.
E)only inventoriable costs under GAAP/IFRS should be included.

Question 19

Benefits from using a well-designed cost allocation system are more evident than the costs.

Question 20

Which of the following illustrates a purpose for allocating costs to cost objects?

A)to provide information for economic decisions
B)to reduce competition
C)to determine employee benefit costs
D)to defer income and reduce taxes payable
E)to evaluate managers and employees

Question 21

Which cost allocation method differentiates between variable and fixed costs?

A)dual-rate method
B)heterogeneous method
C)single-rate method
D)variable method
E)fixed rate method

Question 22

The single-rate method makes a distinction between fixed and variable costs.

Question 23

The single-rate cost allocation method provides better information for decision making than the dual-rate method.

Question 24

Benefits of the single-rate method include

A)the low cost of implementation.
B)fixed costs that are transformed into variable costs for user decision making.
C)signals regarding how variable and fixed costs behave differently.
D)information that leads to outsourcing decisions that benefit the organization as a whole.
E)there is a stronger cause and effect relationship.

Question 25

The use of budget capacity in the denominator rate for a fixed cost pool is preferable as it reduces the ability of managers to manipulate the allocation rate.

Question 26

List three benefits from the careful costing of combinations of quantities of products and services in bundled products.

Question 27

One of the important aspects about the dual-rate method is that it allows managers to see how variable and fixed costs behave differently.

Question 28

Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?

A)fixed method
B)dual-rate method
C)homogeneous method
D)standard cost method
E)single-rate method

Question 29

The dual-rate cost allocation method classifies costs into two pools,a budgeted cost pool and an actual cost pool.

Question 30

Scarborough Sales,a real estate company specializing in apartment rentals and home sales,is having difficulty in gathering appropriate cost information for evaluating its operations.It owns several large apartment complexes and sells homes owned by builders or existing homeowners.As the company's new accountant you define cost by major activity.You use this information for allocating costs to cost objects.Also,cost pools are created for appropriate cost allocations.The owner of the company is interested in exactly what you have done,and why it appears to be working so smoothly.
Required:
Briefly state the four purposes for allocating costs to cost objects and give two examples of how each can be used for the real estate company.

Question 31

In a firm's value chain upstream costs are categorized as

A)customer service costs.
B)production costs.
C)design costs.
D)marketing costs.
E)distribution costs.

Question 32

Benefits of the dual-rate method include

A)variable costs that are transformed into fixed costs for user decision making.
B)the low cost of implementation.
C)avoidance of expensive analysis for categorizing costs as either fixed or variable.
D)information that leads to outsourcing decisions that benefit the organization as a whole.
E)increased costs of implementation.

Question 33

The single-rate method is when all indirect costs are combined in one cost pool and allocated to cost objects via a single rate per unit.

Question 34

Which purpose of cost allocation is used to decide on the selling price for a customized product or service?

A)to provide information for economic decisions
B)to motivate managers and other employees
C)to justify costs
D)to measure income and assets for reporting to external parties
E)to compute reimbursement

Question 35

An electronics manufacturer is trying to encourage its engineers to design simpler products so that overall costs are reduced.
Required:
Which of the value-chain function costs (R&D,design,production,marketing,distribution,customer service)should be included in product-cost estimates to achieve the above purpose? Why?

Question 36

An advantage of the single-rate method is that it is easier and always the most accurate cost-allocation choice.

Question 37

The standard cost method uses budgeted cost driver use to determine the overhead allocation rate.

Question 38

The method that allocates costs in each cost pool using the same rate per unit is known as the

A)incremental cost allocation method.
B)reciprocal cost allocation method.
C)single-rate cost allocation method.
D)dual-rate cost allocation method.
E)homogeneous cost allocation method.

Question 39

Using the single-rate method transforms the fixed costs per hour into a variable cost to users of that facility.

Question 40

A company might choose to allocate corporate costs to various divisions within the company for what four purposes? Give an example of each.

Question 41

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a dual-rate cost allocation method is used,what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

A)$782,500
B)$817,500
C)$822,500
D)$705,000
E)$996,923

Question 42

If a dual-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Operations Department?

A)$57,000
B)$56,400
C)$60,490
D)$59,890

Question 43

Answer the following question(s)using the information below:
The Bonawitz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations Department was 180,000 copies.
If a single-rate cost allocation method is used,what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

A)$8,400
B)$9,000
C)$6,000
D)$4,800
E)$6,655

Question 44

Use the information below to answer the following question(s).
General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What is the allocated cost to the two General Media divisions,respectively,if budgeted usage is the base for fixed costs and actual usage is the base for variable costs? (Use dual-rate method. )Assume that the Cassette and CD Divisions used 1,750 and 200 hours,respectively.

A)$1,050,000;$120,000
B)$1,787,240;$204,256
C)$1,465,957;$214,043
D)$2,000,126;$294,112
E)$1,787,240;$254,043

Question 45

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a single-rate cost allocation method is used,what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate copying costs.

A)$1,057,500
B)$822,500
C)$763,750
D)$705,000
E)$1,476,923

Question 46

Use the information below to answer the following question(s).
General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What are the fixed cost per year and the variable cost per hour for the General Media CD Division if the dual-rate method is used? Assume that the allocation bases are budgeted usage for fixed costs and for variable costs.

A)$100,270 and $480
B)$126,000 and $400
C)$134,043 rounded and $480
D)$134,043 rounded and $400
E)$900,000 and $400

Question 47

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a dual-rate cost allocation method is used,what amount of materials laboratory costs will be budgeted for the Small Plane Department?

A)$1,057,500
B)$763,750
C)$705,000
D)$822,500
E)$897,500

Question 48

Use the information below to answer the following question(s).
Data Source Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What is the total cost per hour of use for the Cassette Division assuming budgeted usage is the allocation base and a single-rate method is used?

A)$1,050.00
B)$600.00
C)$982.98
D)$382.98
E)$360.00

Question 49

Answer the following question(s)using the information below:
The Bonawitz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations Department was 180,000 copies.
If a dual-rate cost allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

A)$30,245
B)$29,945
C)$28,500
D)$28,200
E)$24,600

Question 50

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a single-rate cost allocation method is used,what is the allocation rate per hour used?

A)$80.00
B)$117.50
C)$146.67
D)$100.00
E)$128.00

Question 51

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a dual-rate cost allocation method is used,what amount of materials laboratory costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

A)$822,500
B)$782,500
C)$817,500
D)$763,750
E)$832,000

Question 52

Use the information below to answer the following question(s).
Data Source Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What is the total cost per hour of use for the CD Division assuming the budgeted rate is used for variable costs and practical capacity is the allocation base for fixed costs?

A)$315.79
B)$950.00
C)$924.00
D)$960.00
E)$360.00

Question 53

Answer the following question(s)using the information below:
The Bonawitz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations Department was 180,000 copies.
If a dual-rate cost allocation method is used,what amount of copying facility costs will be budgeted for the Operations Department?

A)$28,500
B)$28,200
C)$30,245
D)$29,945
E)$24,600

Question 54

Answer the following question(s)using the information below:
The Bonawitz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations Department was 180,000 copies.
If a single-rate cost allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

A)$9,000
B)$1,800
C)$7,200
D)$28,500
E)$24,600

Question 55

Answer the following question(s)using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory.The laboratory has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
If a dual-rate cost allocation method is used,what amount of materials laboratory costs will be budgeted for the Large Plane Department?

A)$1,057,500
B)$822,500
C)$1,880,000
D)$1,600,000
E)$982,500

Question 56

If a dual-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

A)$60,490
B)$59,890
C)$57,000
D)$56,400

Question 57

Use the information below to answer the following question(s).
General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What is the allocated cost to the two General Media divisions,respectively,if the single rate is $1,000? Assume that the Cassette and CD Divisions used 1,750 and 200 hours,respectively.

A)$807,692 rounded and $92,308 rounded
B)$900,000 and $200,000
C)$1,750,000 and $200,000
D)$2,800,000 and $320,000
E)$900,000 and $320,000

Question 58

Answer the following questions using the information below:
The Charmatz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility
for 400,000 to 600,000 copies:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.
If a single-rate cost allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

A)$18,000
B)$3,600
C)$14,400
D)$16,800

Question 59

Use the information below to answer the following question(s).
General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.The following data have been prepared for review.

What is the fixed cost per year and the variable cost per hour,respectively,for the General Media Cassette Division using the dual-rate method,assuming that the allocation bases are capacity for fixed costs and budgeted capacity for variable costs?

A)$720,000 and $360
B)$720,000 and $400
C)$765,958 rounded and $400
D)$765,958 rounded and $360
E)$900,000 and $400

Question 60

Answer the following questions using the information below:
The Charmatz Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility
for 400,000 to 600,000 copies:
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.
If a single-rate cost allocation method is used,what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

A)$16,800
B)$18,000
C)$12,000
D)$9,600

Question 61

Assuming that that fixed and variable costs are allocated according to capacity used then the fixed and variable costs allocated to the Sauna Department will be

A)$30,000 and $50,000,respectively.
B)$30,000 and $60,000,respectively.
C)$30,000 and $75,000 respectively.
D)$40,000 and $60,000,respectively.
E)$60,000 and $40,000,respectively.

Question 62

An advantage to using budgeted usage,rather than actual usage,for the allocation base is that

A)GAAP/IFRS requires it for comparability to previous years.
B)variable costs are lower.
C)management does not have to be accountable for actual costs since the system only deals with budgeted costs.
D)it is consistent with a short-run time horizon.
E)user divisions will know their allocated costs in advance.

Question 63

The Eco-Garden Corporation operates one central plant that has two divisions,the Lawnmower Division and the Weedwacker Division.The following data apply to the coming budget year:
Budgeted costs of the operating the plant
for 4,000 to 8,000 hours:

Assume that practical capacity is used to calculate the allocation rates.Further assume that actual usage of the Lawnmower Division was 350 hours and the Weedwacker Division was 200 hours for the month of June.
Required:
a.If a single-rate cost allocation method is used,what amount of operating costs will be budgeted for the Lawnmower Division each month? For the Weedwacker Division each month?
b.For the month of June,if a single-rate cost allocation method is used,what amount of cost will be allocated to the Lawnmower Division? To the Weedwacker Division? Assume actual usage is used to allocate operating costs.
c.If a dual-rate cost allocation method is used,what amount of operating costs will be budgeted for the Lawnmower Division each month? For the Weedwacker Division each month?
d.For the month of June,if a dual-rate cost allocation method is used,what amount of cost will be allocated to the Lawnmower Division? To the Weedwacker Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Question 64

When budgeted cost allocation rates are used,managers of the supplier division are motivated to improve efficiency.

Question 65

Use the information below to answer the following question(s).
We Be Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used.
For both departments,common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
The fixed and variable costs allocated to the Barbell Department are

A)$50,000 and $75,000,respectively.
B)$50,000 and $60,000,respectively.
C)$30,000 and $75,000,respectively.
D)$30,000 and $60,000,respectively.
E)$30,000 and $50,000 respectively.

Question 66

A disadvantage of allocating fixed costs using a budgeted rate and actual usage is that

A)supplying division managers may be tempted underestimate usage.
B)the allocation would capture the cause-and-effect relationship.
C)variation in usage will result in variances that need to be managed.
D)changes in one department's usage should not affect another department's allocation.
E)some organizations offer rewards to managers who make accurate forecasts.

Question 67

The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually.Variable costs are incurred at the rate of $30 per maintenance-hour.The facility averages 40,000 maintenance-hours a year.Budgeted and actual hours per user for the year are as follows:

Assume that budgeted maintenance-hours are used to calculate the allocation rates.
Required:
a.If a single-rate cost allocation method is used,what amount of maintenance cost will be budgeted for each department?
b.If a single-rate cost allocation method is used,what amount of maintenance cost will be allocated to each department based on actual usage?
c.If a dual-rate cost allocation method is used,what amount of maintenance cost will be budgeted for each department?
d.If a dual-rate cost allocation method is used,what amount of maintenance cost will be allocated to each department based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

Question 68

When actual cost allocation rates are used,managers of the supplier division are motivated to improve efficiency.

Question 69

Fixed cost allocation rates should be determined using

A)past production capacity.
B)short-term average usage.
C)short-term expected usage.
D)long-term expected usage.
E)actual usage.

Question 70

The Alex Miller Corporation operates one central plant that has two divisions,the Flashlight Division and the Lamp Division.The following data apply to the coming budget year:
Budgeted costs of the operating the plant
for 10,000 to 20,000 hours:

Assume that practical capacity is used to calculate the allocation rates.Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.
Required:
a.If a single-rate cost allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
b.For the month of June,if a single-rate cost allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.
c.If a dual-rate cost allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
d.For the month of June,if a dual-rate cost allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Question 71

A support department adds value directly to a product or service,which is observable by the customer.

Question 72

Use the information below to answer the following question(s).
We Be Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used.
For both departments,common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
The fixed and variable costs allocated to the Sauna Department are

A)$50,000 and $75,000,respectively.
B)$50,000 and $60,000,respectively.
C)$30,000 and $75,000,respectively.
D)$30,000 and $50,000,respectively.
E)$30,000 and $60,000 respectively.

Question 73

A budgeted rate helps to motivate the manager of a support department.

Question 74

User departments will be able to determine their allocated costs for each category in advance if budgeted usage is the allocation base.

Question 75

The user department is responsible for any unfavourable cost variances during the budgeting period if budgeted prices and quantities are used for cost allocation.

Question 76

When choosing between using budgeted rates,and actual rates,which of the following is TRUE?

A)Actual rates let users know in advance what their costs are.
B)When budgeted rates are used,users must wait till the end of the budget period to know what their costs are.
C)With actual rates,a support department,rather than a user department,bears the risk of unfavourable cost variances.
D)Budgeted rates based on user department estimates may lead to outsourcing needed work,rather than relying on an internal support department.
E)Budgeted rates may help the manager of a support department to improve efficiency.

Question 77

When budgeted cost allocation rates are used,variations in actual usage by one division affect the costs allocated to other divisions.

Question 78

Assuming that fixed and variable costs are allocated according to capacity used then the fixed and variable costs allocated to the Barbell Department will be

A)$30,000 and $50,000,respectively.
B)$30,000 and $60,000,respectively.
C)$30,000 and $75,000 respectively.
D)$40,000 and $60,000,respectively.
E)$60,000 and $40,000,respectively.

Question 79

Which of the following departments is least likely to be a support department for a boat manufacturing company?

A)personnel
B)moulding and assembly
C)data processing
D)accounting
E)purchasing

Question 80

AAA Fence Company manufactures wireless and aluminium fences in a common manufacturing facility.The company has become aware of unusual discrepancies in the costs of its products which management cannot explain.It seems that the sales and related production of wireless fences are in a very consistent growth market and are easily predicted.However,the sales and related production of aluminium fences are very erratic.Management does not understand why the costs per unit of wireless fences change when the production level seldom changes.
Required:
a.After some investigation you determine that for the last two quarters,the common fixed cost of the manufacturing operation has been $800,000.For the first quarter 12,000 wireless and 13,000 aluminium units were produced,respectively.For the second quarter,12,000 wireless and 8,000 aluminium units were produced,respectively.What were the total cost per product and the cost per unit of each product in each quarter when production units is the allocation basis?
b.After studying the results of the above computations you decide to use the company's average quarterly production of 12,000 wireless and 10,500 aluminium units as the allocation base,respectively.What are the total cost per product and the cost per unit per quarter for each product when average production is used?
c.Which allocation base do you recommend,and why?