Question 1

Suppose the company uses the step-down method and Personnel Department costs are allocated first. The amount of this cost allocated to the Engineering Department would be:

Accepted Answer

The question uses the step-down method and allocates Personnel Department costs first. Therefore, we allocate the Personnel Department costs of $10,800 to the Engineering Department (100% of the Personnel Department costs).
After the Personnel Department costs are allocated, we allocate the remaining costs of the Maintenance Department to the Engineering Department and the Production Department based on their usage of Maintenance Department services. The Maintenance Department costs are $61,200 ($72,000 - $10,800 allocated to Personnel Department).
Engineering Department's usage percentage is 70% ($84,000 ÷ $120,000) and Production Department’s usage percentage is 30% ($36,000 ÷ $120,000).
Therefore, the Engineering Department's share of the Maintenance Department costs is $42,840 ($61,200 × 70%), and its total allocated cost is $53,640 ($10,800 + $42,840). 
Hence, the correct answer is option C ($72,000).

Question 2

The amount of Personnel Department cost that would be allocated to Operating Department 2 under the direct method would be:

Accepted Answer

The direct method allocates service department costs directly to operating departments based on a specific allocation base. The cost allocated to Operating Department 2 is $420,000.

Question 3

Assume that the company uses the direct method of allocation. The predetermined overhead rate in the Assembly Department would be closest to:

Accepted Answer

To calculate the predetermined overhead rate using the direct method, we need to divide the estimated total overhead costs for the period by the estimated total amount of the allocation base. 
For the Assembly Department:
Estimated Overhead costs = $820,000
Estimated Allocation base = 50,500 direct labor hours
Predetermined overhead rate = $820,000 / 50,500 = $16.237
Thus, the closest predetermined overhead rate is $16.27 (B).

Question 4

The total Customer Solutions Department cost after the allocations of service department costs is closest to:

Accepted Answer

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Question 5

Suppose the company uses the step-down method of allocation and Personnel Department costs are allocated first. The amount of this cost allocated to the Engineering Department under the step-down method would be:

Accepted Answer

The step-down method first allocates the costs of the department that provides services to other departments. In this case, the Personnel Department provides services to the Engineering Department.

The total cost of the Personnel Department is $174,900 ($63,900 + $111,000). If we allocate this cost based on the allocation rate of 50% for the Engineering Department, we get:

Allocated cost for Engineering Department = $174,900 x 50% = $87,450

However, since the Personnel Department also provides services to the Administration Department, we need to remove the portion of the cost that is attributed to the Administration Department. The Administration Department has a direct cost of $76,800, which means it is responsible for 44% of the Personnel Department's total cost ($76,800 ÷ $174,900).

Therefore, the amount of Personnel Department cost allocated to the Engineering Department under the step-down method is:

$87,450 - ($174,900 x 44%) = $58,275

The correct answer is D.

Question 6

Assume that the company uses the step-down method of allocation with Custodial Services allocated first. The amount of Custodial Services cost allocated to the Assembly Department would be:

Accepted Answer

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Question 7

Assume that the company uses the step-down method of allocation with Custodial Services allocated first. The amount of cost allocated from the Cafeteria to the Cutting Department would be:

Accepted Answer

According to the step-down method of allocation with Custodial Services allocated first, the Custodial Services cost would be allocated first to the two service departments - Cafeteria and Cutting Department.

Using the given information, the allocation of $24,000 from Custodial Services to Cafeteria gives a total cost of $84,000 for Cafeteria.

Next, this cost is allocated to the Cutting Department based on the given percentages - 60% for Cutting and 40% for Packing.

Therefore, the cost allocated from Cafeteria to Cutting Department would be:
$84,000 x 60% = $50,400

However, this is not the final amount as the Cutting Department also received $8,000 directly from Custodial Services. Therefore, the total cost allocated to the Cutting Department would be:
$50,400 + $8,000 = $58,400

Hence, the answer is option C) $14,160.

Question 8

In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to:

Accepted Answer

The Personnel Department cost is allocated based on the number of employees in each department.

Personnel Department cost per employee = $509,599 ÷ 25 = $20,384

Number of employees in the Family Law Department = 7

Personnel Department cost allocated to Family Law Department = $20,384 × 7 = $142,688

However, the Family Law Department also incurs its own personnel costs of $108,763. Thus, the net allocation of Personnel Department cost to the Family Law Department is:
$142,688 - $108,763 = $33,925

Therefore, the correct answer is D.

Question 9

The total Corporate Law Department cost after allocations is closest to:

Accepted Answer

We need to add up the direct costs of the Corporate Law Department and the allocated costs from IT and HR. 
Direct cost of Corporate Law Department = $350,000 
Allocated cost from IT = 10% of $50,000 = $5,000 
Allocated cost from HR = 25% of $98,532 = $24,633 
Total cost = $350,000 + $5,000 + $24,633 = $379,633 
However, we also need to add the allocated cost of the Corporate Law Department to other departments. 
Allocated cost to other departments = 10% of $350,000 = $35,000 
Total cost = $379,633 + $35,000 = $414,633 
The closest option is C) $422,931.

Question 10

The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to:

Accepted Answer

The total amount of administrative department cost is $54,000. According to the table, the allocation percentage for the adult medicine department is 40%. Therefore, the amount allocated to the adult medicine department would be 40% of $54,000, which is $21,600. Therefore, the closest answer is C, $21,600.

Question 11

The total Pediatrics Department cost after the allocations of service department costs is closest to:

Accepted Answer

To calculate the total cost of Pediatrics Department after the allocation of service department costs, we need to add the allocated costs to the direct costs of the department.

The allocated costs for Pediatrics department are as follows:

From Housekeeping: $40,000 
From Laboratory: ($150,000 + $90,000) * 40% = $96,000 
From Radiology: ($180,000 + $110,000) * 25% = $72,500

So total allocated costs are: $40,000 + $96,000 + $72,500 = $208,500

Now, we can add the direct cost of Pediatrics Department to the allocated cost to get the total cost:

$313,200 + $208,500 = $521,700

Therefore, the answer is D.

Question 12

The amount of Personnel Department cost that would be allocated to Producing Department 2 under the direct method is closest to:

Accepted Answer

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Question 13

Assume that the company uses the step-down method of allocation with Custodial Services allocated first. The amount of cost allocated from the Cafeteria to Custodial Services would be:

Accepted Answer

In the step-down method, once Custodial Services costs are allocated, no costs are allocated back to it from other departments like the Cafeteria. Therefore, the amount allocated from the Cafeteria to Custodial Services is $0.

Question 14

Assume Millard allocates service department costs by the direct method. After all allocations, the total amount of overhead costs in Operating Department 1 will be:

Accepted Answer

Millard allocates service department costs by the direct method. This means that the costs of the service departments are allocated directly to the operating departments. In this case, the total amount of overhead costs in Operating Department 1 will be $155,000.

Question 15

The total amount of Administrative Department cost allocated to the Assembly Department is closest to:

Accepted Answer

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Question 16

Assume Millard allocates service department costs by the step-down method with Service Department A allocated first. After all allocations, the total amount of overhead cost in Operating Department 2 will be closest to:

Accepted Answer

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Question 17

Costs in the Personnel Department total $900,000 per year. Under the step-down method, the costs of the Personnel Department are allocated before the costs of the Engineering Department are allocated. The amount of this cost allocated to the Engineering Department under the step-down method is closest to:

Accepted Answer

To allocate the costs using the step-down method, we need to choose a sequence in which the departments allocate costs to each other. In this case, we are told to allocate the costs of the Personnel Department before allocating the costs of the Engineering Department.

Step 1: Allocate the costs of the Personnel Department to itself. This is straightforward since all $900,000 of costs are incurred by the Personnel Department itself.

Step 2: Allocate the costs of the Personnel Department to the Engineering Department, using the given percentages. We are told that 40% of the Personnel Department's costs are due to the Engineering Department, so we allocate $360,000 to the Engineering Department.

Step 3: Allocate the remaining costs of the Engineering Department to itself. Since the Engineering Department has no other costs besides those allocated to it from the Personnel Department, we don't need to allocate anything else.

Therefore, the amount of cost allocated to the Engineering Department under the step-down method is $360,000, or choice C.

Question 18

The total Surgery Department cost after service department allocations is closest to:

Accepted Answer

The total Surgery Department cost after service department allocations is closest to $540,968, which is option A.

Question 19

Suppose the company uses the direct method of allocation. The amount of Personnel Department cost that would be allocated to Operating Department 2 would be:

Accepted Answer

Under the direct method, only the costs that can be directly traced to the operating department are allocated. In this scenario, the Personnel Department costs are considered indirect and not directly traceable to any of the operating departments. Therefore, the amount of Personnel Department cost allocated to Operating Department 2 would be $0.

Question 20

Assume that the company uses the direct method of allocation. The amount of Custodial Services cost allocated to the Cutting Department would be:

Accepted Answer

The direct method allocates service department costs directly to production departments. The given amount of $22,400 is the cost allocated to the Cutting Department.

Quiz 9: Service Department Allocations