Service Department and Joint Cost Ch11 Complete Test Bank

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 11 Service Department and Joint Cost Allocation

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

2) 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.

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

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

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

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

7) 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. 

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

9) 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.

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

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

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

13) 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.

14) 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.

15) 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.

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

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

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

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

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

21) 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.

22) 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.

23) 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.

24) 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.

25) 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.

26) 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.

27) 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.

28) 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.

29) 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.

30) 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.

31) 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?

A) Option A

B) Option B

C) Option C

D) Option D

32) 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.

33) 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.

34) Jamison Company has two service departments and two producing departments. Square footage of space occupied by each department follows:

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.

35) Veneer Company has two service departments and two producing departments. The number of employees in each department is:

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.

36) 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.

37) 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:

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.

38) 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:

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.

39) 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:

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.

40) 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.

41) 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.

42) 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.

43) 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.

44) 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.

45) 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.

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.

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.

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.

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.

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.

48) 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.

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.

49) 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:

Expected costs in the service departments for June are as follows:

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.

50) 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:

Expected costs in the service departments for June are as follows:

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.

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:

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.

52) 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:

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.

53) 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:

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.

54) 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:

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.

55) 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:

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.

56) Palace Company has two service departments and two user departments. The number of employees in each department is:

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.

57) 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.

58) 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.

59) The following information relates to Osceola Corporation for the past accounting period.

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.

60) The following information relates to Osceola Corporation for the past accounting period.

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

61) 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.

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.

62) 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.

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.

63) 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.

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.

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.

Use of services by other departments is as follows.

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.

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.

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.

66) 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.

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.

67) 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:

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?

A) Option A

B) Option B

C) Option C

D) Option D

68) 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:

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.

69) 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.

70) 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.

71) 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.

72) 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.

73) 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.

74) 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.

75) 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.

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.

77) 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.

78) Net realizable value at the split-off point is used to allocate:

A) Option A

B) Option B

C) Option C

D) Option D

79) 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.

80) 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:

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.

81) Great Falls Company makes two products, Wool Gloves and Wool Mittens. They are initially processed from the same raw material and then, after split-off, further processed separately. Additional information is as follows:

What are the joint costs allocated to Gloves and Mittens assuming Great Falls uses the estimated net realizable value approach?

A) Option A

B) Option B

C) Option C

D) Option D

82) Atkinson, Inc., manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows:

Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product A?

A) $27,000.

B) $29,000.

C) $33,000.

D) $30,000.

83) Atkinson, Inc., manufactures products A, B, and C from a common process. Joint costs were $60,000. Additional information is as follows:

Assuming that joint product costs are allocated using the net realizable value method, what were the total costs assigned to Product B?

A) $26,000.

B) $26,796.

C) $27,000.

D) $28,286.

84) Tanner Corporation produced 3,660 units, consisting of three separate products, in a joint process for the year. The market for these products was so unstable that it was not practical to estimate the selling price of the products. A cost of $425,000 was incurred in the joint process. Product X's production was 80% of product Y's while product Z's production was 125% of product Y's. What is the amount of the joint cost allocable to product X (rounded to the nearest whole dollar) assuming Tanner uses the physical quantities method of allocation?  

A) $111,475.

B) $114,865.

C) $139,344.

D) $141,667.

85) Cariboo Manufacturing Company incurred a joint cost of $600,000 in the production of X and Y in a joint process. Presently, 1,800 of X and 1,400 of Y are being produced each month. Management plans to decrease X's production by 300 units in order to increase the production of Y by 500 units. Additionally, this change will require minor modifications, which will add $20,000 to the joint cost. This cost is entirely attributable to product Y. What is the amount of the joint costs allocable to X and Y before changes to existing production assuming Cariboo allocates their joint costs according to the proportion of X and Y produced?

A) Option A

B) Option B

C) Option C

D) Option D

86) Upton Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Upton has employed the physical quantities method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Upton's operations for the current month are presented in the chart below. During the month, Upton incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further.

The amount of joint production cost that Upton would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be:

A) $1,200,000.

B) $1,260,000.

C) $1,500,000.

D) $1,575,000.

87) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were:

If the estimated net realizable value method is used and product Q is accounted for as a main product, how much of the joint costs would be allocated to product R?

A) $38,889.

B) $41,667.

C) $50,000.

D) $62,500.

88) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were:

Assume Q is a by-product and Mallak uses the cost reduction method of accounting for by-product cost. If estimated net realizable value is used, how much of the joint costs would be allocated to product R?

A) $38,889.

B) $43,750.

C) $50,000.

D) $62,500.

89) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were:

If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product P?

A) $43,750.

B) $50,000.

C) $60,000.

D) $62,500.

90) The Mallak Company produced three joint products at a joint cost of $100,000. Two of these products were processed further. Production and sales were:

What is the net income of Mallak Company if the estimated net realizable value method of joint cost allocation is used?

A) $20,000.

B) $50,000.

C) $150,000.

D) $350,000.

91) Cambridge Company manufactures three main products, L, M, and N, from a joint process. Additional information for June production activity follows:

Assuming that the 10,000 units of N were processed further and sold for $78,000, what was Cambridge's gross profit from this sale? Assume the physical quantities method of allocation is used.

A) $21,000.

B) $28,500.

C) $30,000.

D) $66,000.

92) Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?

A) Tons of steel.

B) Ounces of gold.

C) Dollars of labor.

D) Feet of lumber.

93) In joint product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted)  

A) Separable costs after the split-off point.

B) Joint costs to the spilt-off point.

C) Sales salaries for the period when the units were produced.

D) Purchase costs of the materials required for the joint products.

94) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

Based on the information presented, which of the products should be processed further?

A) Sweet Meats only.

B) Both Sweet Meats and Chocolate Delight.

C) Minty Wonders only.

D) Both Sweet Meats and Minty Wonders.

95) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

The net advantage (disadvantage) of processing Sweet Meats further is:

A) a $25,000 disadvantage to process further.

B) a $32,143 advantage to process further.

C) a $25,000 advantage to process further.

D) a $282,143 disadvantage to process further.

96) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

The joint processing costs in this operation:

A) Should be allocated to products to determine whether they are sold at split-off or processed further.

B) Should be ignored in determining whether to sell at split-off or process further.

C) Should be ignored in making all product decisions.

D) Are never included in product cost, as they are misleading to all management decisions.

97) Delite Confectionary Company produces various types of candies. Several candies could be sold at the split-off point or processed further and sold in a different form after further processing. The candies are produced in a joint processing operation with $500,000 of joint processing costs monthly, which are allocated based on pounds produced. Information concerning this process for a recent month appears below:

If Chocolate Delight is processed further, the gross profit margin that will appear in a product line income statement for Chocolate Delight (rounded to the nearest whole dollar) would be:

A) $734,286.

B) $520,000.

C) $1,020,000.

D) $632,596.

98) The Foxmoor Company produces three products, X, Y, and Z, from a single raw material input. Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y:

A) Should be sold at the split-off point, rather than processed further.

B) Would increase the company's overall net income by $18,000 if processed further and then sold.

C) Would increase the company's overall net income by $68,000 if processed further and then sold.

D) Would increase the company's overall net income by $2,000 if processed further and then sold.

99) Product C is one of several joint products that come out of Department M. The joint costs incurred in Department M total $40,000. Product C can be sold at split-off or processed further and sold as a higher quality item. The decision to process further should be based on the:

A) Assumption that the $40,000 is irrelevant.

B) Allocation of the $40,000, using the net realizable value.

C) Allocation of the $40,000, using a physical measures approach.

D) Allocation of the $40,000, using the relative sales value at split-off method.

100) The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of:

A) Sales value of the products produced during the common production process.

B) Direct manufacturing costs (e.g., materials) incurred before the split-off point.

C) Physical measures in the products produced during the common production process.

D) Time (i.e., labor) required to produce the products from start to finish.

101) If by-product revenue is treated as other revenue instead of deducted from the net-realizable-value of the main products:

A) Overall gross margin of the company will be higher.

B) Overall gross margin of the company will be lower.

C) The answer would depend on how joint product costs were allocated.

D) There is no difference in the overall gross margin of the company.

102) Products with a relatively minor sales value are called:

A) Scrap.

B) Spoilage.

C) By-products.

D) Main products.

103) Joint products and by-products are produced simultaneously by a single process or series of processes and:

A) Joint products are salable at the split-off point, but by-products are not.

B) By-products are salable at the split-off point, but joint products are not.

C) The revenue from by-products may be recognized at the time of production.

D) All by-products must be allocated some portion of joint costs.

104) Which of the following statements regarding accounting for by-products is true?

A) If all products are sold in the same period as they are produced, treating by-product revenue as other revenue will result in a higher overall gross margin.

B) If all products are sold in the same period as they are produced, treating by-product net-realizable-value as a deduction of the cost of the main products will result in a higher overall gross margin.

C) If all products are sold in the same period as they are produced, total reported revenues will be the same regardless of how by-product revenue is accounted for.

D) If all products are sold in the same period as they are produced, the reported gross margin will be the same regardless of how by-product revenue is accounted for.

105) For each of the support service costs listed below, name an appropriate cost allocation base:

106) Wimbledon Corporation has two production Departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows:

Required:

Compute the allocation of service department costs to producing departments for July 2020 using the direct method.  

107) Prestige Financial Credit Company produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. Total support service costs to be allocated are $3,200,000. The relevant figures for the year just completed follow:

Required:

For each of the four potential allocation bases, determine the amount of support service cost allocated to each type of report. Round all percentages to two decimal places.  

108) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.

Required:

Allocate the service department costs to the user departments using the direct method. (Round to the nearest whole dollar and provide total user department costs.)  

109) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.

Required:

Allocate the service department costs to the user departments using the step method. Allocate Information Systems first and round to the nearest whole dollar. Provide total user department costs.  

110) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas:

The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.

Required:

Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue areas using the direct method.

111) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas:

The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.

Required:

Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue areas using the step method. Allocate the service department with the largest dollar value first.

112) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases.

Clerical: number of transactions processed.

Custodial: square footage of space occupied.

Average and expected activity levels for next month are as follows:

Required:

Use the direct method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments.

113) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations Abstracting Services and Closing Services are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases.

Clerical: number of transactions processed.

Custodial: square footage of space occupied.

Average and expected activity levels for next month are as follows:

Required:

a. Use the step method to allocate the service department costs to the revenue generating departments. Assume Clerical costs are allocated before Custodial costs and round all calculations to the nearest whole dollar. Provide the total costs for the revenue departments.

b. Use the step method to allocate the service department costs to the revenue generating departments but now assume Custodial costs are allocated before Clerical costs. Provide the total costs for the revenue departments.

114) Aardvark Industries has two production departments, Assembly and Finishing, and three Service Departments, Personnel, Maintenance, and Cafeteria. Data relevant to Aardvark are:

Required:

Allocate the service department costs of Aardvark Industries using the step method of cost allocation.  

115) Mena Corporation has two production departments, Assembly and Finishing, and three service departments, Personnel, Maintenance, and Cafeteria. Data relevant to Mena are:

Assembly and Finishing worked on two jobs during the month: Jobs 100 and 101. Costs are allocated to jobs based on machine hours in Assembly and labor hours in Finishing. The machine and labor hours worked in each department are as follows:

Required:

Determine the amount of service department costs to be allocated to Jobs 100 and 101. Mena allocates service department costs to production departments using the direct method of allocation. (Round cost per hour to four decimal places and all other calculations to the nearest whole dollar.)

116) Boston Corporation has two production departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows:

Required:

Compute the allocation of service department costs to producing departments for July 2020 using the step method.  

117) Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

Service Departments User Departments

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.

Required:

Allocate the service department costs to the user departments using the reciprocal method. Round to the nearest whole dollar.  

118) Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases.

Clerical: number of transactions processed.

Custodial: square footage of space occupied.

Average and expected activity levels for next month are as follows:

Required:

Use the reciprocal method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments.

119) Yellville Regional Hospital is a small hospital with two service departments and three revenue areas:

The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.

Required:

Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue areas using the reciprocal method.

120) Franklin Corporation has three operating departments (Fabricating, Assembly, and Finishing) and two service departments (Custodial and Administrative). The following information has been provided:

Required:

Franklin has been approached by Sparkle Cleaning to outsource the custodial service. Assuming all costs are variable, what is the relevant cost of the custodial department to compare with the Sparkle Cleaning bid?

121) The Joplin Company conducts a simple chemical process in Department #1, which produces three separate items: A, K, and H. A is processed further in Department #2. K is processed further in Department #3. Product H is a by-product, to be accounted for by the cost reduction method. The following information relates to September:

Department #1's costs $420,000.

Department #2's costs $150,000.

Department #3's costs $60,000.

A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound.

K: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound.

H: 10,000 pounds completed; 10,000 pounds sold for $1.50 per pound. (There are shipping costs of $0.30 per pound.)

There were no beginning inventories.

Required:

Prepare a schedule to show the computation for the unit costs per pound for Products A, K, and H assuming Joplin uses the estimated net realizable value method to allocate joint costs to the main products.

122) Simpson Manufacturing Enterprises uses a joint production process that produces three products at the split-off point. Joint production costs during April were $720,000. The company uses the net realizable value method for allocating joint costs. Product information for April was as follows:

Required:

a. Assume that all three products are main products and that they can be sold at the split-off point or processed further, whichever is economically beneficial to Simpson. Allocate the joint costs to the three products.

b. Assume that Simpson uses the physical quantities method to allocate the joint costs. How much would be allocated to each of the three products?

123) Clean-Burn, Inc. is a small petroleum company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Clean-Burn does not have the technology or capacity to process these products further and sell most of its output each month to major refineries. There were no inventories on November 1.

Production and sales

Two Oil, 300,000 barrels produced; 280,000 barrels sold at $20 each.

Six Oil, 240,000 barrels produced; 220,000 barrels sold at $30 each.

Distillates, 120,000 barrels produced and sold at $15 per barrel.

Required:

a. Allocate the joint costs to the products using the physical quantities method.

b. Allocate the joint costs to the products using the net realizable value method.

124) Smokey Enterprises buys Liquid Charcoal for $0.80 a gallon. At the end of processing in Department 1, the liquid charcoal splits off into Products U, V, and W. Product U is sold at the split-off point, with no further processing. Products V and W require further processing before they can be sold; Product V is processed in Department 2, and Product W is processed in Department 3. Following is a summary of costs and other related data for the most recent accounting period:

There were no beginning inventories and there was no liquid charcoal on hand at the end of the period. All gallons on hand in ending inventory were complete as to processing.

Required:

a. Determine the product cost for U, V, and W, assuming the physical quantities method is used to allocate joint costs.

b. Determine the product cost for U, V, and W, assuming the net realizable value method is used to allocate joint costs.

125) The Wang Company conducts a simple chemical process in Department #1, which produces three separate items: A, B, and C. A is processed further in Department #2. B is processed further in Department #3. Product C can be sold immediately. The following information relates to October:

Department #1's costs $540,000.

Department #2's costs $120,000.

Department #3's costs $300,000.

A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound.

B: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound.

C: 50,000 pounds completed; 46,000 pounds sold for $5.00 per pound.

There were no beginning inventories.

Required:

a. Allocate the joint process costs to Products A, B, and C assuming the estimated net realizable value method is used.

b. Allocate the joint process costs to products A, B, and C assuming the physical quantities method is used.

126) The Marketplace Corporation produces two consumer products and a by-product. Zylon is ready for sale after split-off, while Qytol must be further processed. The by-product is a heavy residue in the bottom of the vat. The net realizable value of the by-product is credited against the $565,000 joint cost of the Heating Department. Volume and cost data for February is as follows:

Required:

a. Allocate the Heating Department cost to the products using the physical quantities method.

b. Allocate the Heating Department cost to the products using the estimated net realizable value (workback) method.

127) The Delicious Canning Company processes tomatoes into ketchup, tomato juice, and canned tomatoes. During the summer, the joint costs of processing the tomatoes were $420,000. There were no beginning or ending inventories for the summer. Production and sales value information for the summer were as follows:

Required:

a. Determine the amount allocated to each product if the estimated net realizable value method is used.

b. Determine the amount allocated to each product if the physical quantities method is used.

128) The Joplin Company conducts a simple chemical process in Department #1, which produces three separate items: A, K, and H. A is processed further in Department #2. K is processed further in Department #3. Product H is a by-product, to be accounted for by the other revenue method. The following information relates to September:

Department #1's costs $420,000.

Department #2's costs $150,000.

Department #3's costs $60,000.

A: 25,000 pounds completed; 23,500 pounds sold for $12 per pound.

K: 75,000 pounds completed; 70,000 pounds sold for $7.50 per pound.

H: 10,000 pounds completed; 10,000 pounds sold for $1.50 per pound. (There are shipping costs of $0.30 per pound.)

There were no beginning inventories.

Required:

Prepare a schedule to show the computation for the unit costs per pound for Products A, K, and H assuming Joplin uses the physical quantities method to allocate joint costs to the main products.

129) Highlands, Inc. operates a sawmill facility. The company accounts for the sawdust that results from the primary sawing operation as a by-product. The sawdust is sold to another company at a price of $1.00 per hundred cubic feet. Normally, sales revenue from the sawdust is $21,200 per month. The sawdust is charged to inventory at $2.20 per hundred cubic feet, although there is no direct cost to process it.

As an alternative, Highlands can rent equipment that will process the dust into imitation logs for fireplaces. These logs sell for $25.00 per log to wholesalers, who package and add scent to them. 75 logs can be produced from 100 cubic feet of sawdust.

Cost of the equipment to produce these logs and the additional personnel required to operate the equipment are $360,000 per month, regardless of the output.

Required:

Should Highlands sell the sawdust for $1.00 per hundred cubic feet or process it into imitation logs? Support your answer with the appropriate calculations. 

130) Voorhees Manufacturing Corporation produces three products in a joint process. Additional information is as follows:

Required:

(a) Determine which products should be sold at split-off and which should be processed further.

(b) Assuming Voorhees makes decisions that are in its best interest for overall profitability, what would be the company's gross margin?  

131) Ridgeline Enterprises produces three products in a joint process. Products A and B are processed further. Additional information is as follows:

Required:

(a) Allocate the joint costs, assuming that all products are joint products and joint-costs are allocated using the physical quantities method.

(b) Allocate the joint costs using the physical quantities method, assuming that product C is considered a by-product, whose sales value is deducted from the total joint costs.  

132) Geneva Powder Company produces body powders in batches. Each type of powder can be sold in its current condition or processed further and specialized for high-priced department stores. Joint processing costs are $200,000. Data concerning the various products appear below: