Write the word or phrase that best completes each statement or answers the question. 71)
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.
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.
For each of the following cost pools select an appropriate allocation base from the list below if the overall cost object is to assign costs to production departments. Each base can be used only once. Assume a manufacturing company.
a.Vice-president of finance's office expenses.
b.Computer operations used in conjunction with manufacturing.
d.Manufacturing machinery cost.
Allocation bases for which the information system can provide data:
1.Number of employees per department.
2.Employee wages and salaries per department.
3.Production facility square metreage.
4.Hours of operation by production department.
5.Machine hours by department.
6.Machines per department.
7.Operations costs of each department.
8.Hours of computer use per month per department.
9.Indirect labour hours per department.
Seacrest Corp. allocates support department overhead costs to operating departments X and Y by means of the reciprocal allocation method.
Information for the current month is as follows:
Overhead Costs$20,000 $10,000
Provide the linear equation to be used in the allocation of A's costs:
Hunt Company and Indio Company are noncompeting lines of business and use a common database for marketing purposes.
The variable costs associated with accessing the database are readily identifiable and kept in separate cost pools that are charged to each user.
The fixed costs of maintaining the database, however, cannot be identified by user on a cause-and-effect basis.
These fixed costs for the next year are budgeted at $55,000.
If Hunt does not use the database, the fixed costs to Indio are $48,000.
An outside vendor offers to provide Hunt access to a comparable database for a fixed fee fo $65,000 per year plus variable costs of accessing the database.
The same vendor offers to provide Indio access to that database for a fixed fee of $35,000 per year plus variable costs of accessing the database.
Compute how much of the $55,000 fixed costs of maintaining the database are charged to by each user:
Under the stand-alone allocation method.
Under the incremental allocation method, assuming Hunt Company is regarded as the primary
Correl Company's power plant provides electricity for its two operating departments, A and B.
The year 2008 budget for the power plant shows:
Budgeted fixed costs$80,000
Budgeted variable costs
per kilowatt hour (kwh)
Additional data for 2008:
Actual power-plant costs:
Compute the budgeted power-plant costs allocated to A and B using the single-rate method with budgeted usage as the allocation base.
Compute the budgeted power-plant costs allocated to A and B using the dual-rate method with actual usage as the allocation base for variable costs and budgeted usage as the allocation base for fixed costs.
From the standpoint of Departments And , what are the two main benefits of the dual-rate method?
Rainier Manufacturing Company uses the step-down method for allocating its support department costs to operating departments.
The overhead costs of support Department A are to be allocated first, followed by the costs of B, and then those of C.
The distribtuion of services is as follows:
Supplied by DepartmentsDepartments
ABC X Y
A -10%50% 20% 20%
B40% -15% 30% 15%
C25%25% – 20% 30%
Calculate the percentage of B's costs that should be allocated to Y.
b. Calculate the percentage of C's costs that should be allocated to B under the step-down method.
John Ebert, a graduating student at a university in Calgary, received an invitation to visit a prospective employer in Halifax.
A few days later, he received an invitation from a prospective employer in Toronto.
He decided to combine his visits, travelling from Calgary to Halifax, Halifax to Toronto, and Toronto to Calgary.
Ebert received job offers from both companies.
On his return, he decided to accept the offer in Toronto.
He was puzzled as to how to allocate his travel costs between the two employers.
He gathered the following data:
Regular Round-Trip Fares with No Stopovers
Calgary to Halifax$1,500
Calgary to Toronto$1,200
Ebert paid $1,900 for his three-leg flight (Calgary to Halifax, Halifax to Toronto, Toronto to Calgary).
In addition, he paid $30 for a limousine from his home to Calgary Airport and another $30 for a limousine from Calgary Airport to his home when he returned.
How should Ebert allocate the $1,900 airfare between the employers in Halifax and Toronto?
Show the actual amounts you would allocate, and give reasons for your allocations.
Repeat requirement 1 for the $60 limousine charges at the Calgary end of his travels.
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.
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?
The fixed cost of operating the maintenance facility of General Hospital is $9,000,000 annually. It incurs variable costs at the rate of $60 per labour hour of maintenance. The facility averages 80,000 maintenance hours a year. Budgeted and actual hours per user for the year were as follows:
Budgeted hours Actual hours
Building and grounds20,00024,000
Operating and emergency16,00016,000
a.How much would each department receive in maintenance costs if a single rate is used based on budgeted hours?
b.How much would each department receive in maintenance costs if a dual rate is used with fixed costs allocated on budgeted hours and variable costs allocated on actual hours?
The cost of operating the quality control department of Ames Manufacturing includes $608,000 of fixed costs and $400,000 of variable costs. The department normally budgets 21,000 inspection hours a year. Two departments receive quality control checks, fabrication and assembly. Fabrication is budgeted at 1,000 hours a month, while assembly is budgeted the remainder.
a.In July, fabrication used 1,000 inspection hours and assembly used 800 hours. How much did each department receive in quality control costs assuming a single rate is used based on budgeted hours?
b.In August, fabrication used 1,200 inspection hours and assembly used 900 hours. How much did each department receive in quality control costs assuming a dual rate is used with budgeted usage for fixed costs and actual usage for variable costs?