Chapter 17 Allocation 0f Support Activity Costs and Joint Cost.docx

Chapter 17 Allocation 0f Support Activity Costs and Joint Costs
Required:
l. Should Brcakfasttime's rnanagemt: nt decide to process
Crummies into thc nrulch I Why?
2. Supposc the company does process Crummies into thc mulch.
Use thc net-realizable-value method
to allocate thc joint producti()n cost bctween (hc rnulch and the
Yummics.
Retcr 10 tlre data given in Exercisc 11-11 forTuscaloosa
National tsank.
Required: Use the reciprocal-scrvices method to allocate thc
budgeted costs ol rhe HII ancl Computing
dcpartrnents to the Dcposit and Loan dcltartments.
759
Exercise 17-23
Recrprocal-Services Method,
Bank (Appendix)
Problems Alt appticabte Probtems are avaitabte with ttcGnw-Hit
(s Connect kcountindn. f, COffieCt
Tampa Instrument Company manufactures gauges for
construction machinery. The company has two
production departments: Machining and Assembly. There are

three service departments: Maintenance,
Human Resources (HR), and Computer Aided Design (CAD).
The usage of these service departments'
output during the yearjust completed is as follows:
Proyision ol Service 0u$ut (in hours ol service)
Provider ol Senice
Uset ol Service HB Mainbnance CAD
500Maintenance
cAD,.,.,.,. , ,
Machining
Assenrbly
Total
The hudgetcd costs in Tampa lnstrumcnt Company's service
departmcnts rluring the year are as
fol kxvs:
HR Maintenance CAD
Variable
Problem 17-24
Direct and Step-Down
Methods of Service
Departnrent Cost Allocation
Problem 17-25
Dual Allocation of Service

Department Costs
r
HR .............,. ............. .
4,500
1,500
6,000
500
3,500
4,000
qga
500
4,000
5,000
l!!00
Fixed
Total
$ 50,ooo
200,000

$250,000
$ 80,000
1 50,000
$230,000
$ 50,ooo
300,000
$350 000
Required:
1. Usc the clirect metllod to allocate Tampa Instrumcnt
Compan]'s servicc dcpartrncnt rjosrs to its
l), ()dudti()n tlepaltrncnts.
2. [)cterrninc thc proper scquencc to use in allocaring thc firm's
scn,icc <lcpartrncnt costs hy the step-
tlou n mcthod.
3. Usc thc stcp-clown rnethod to allocate the companv's servicc
dcpartment cosrs.
4. ,' Construcl atr Ercel spreldshect t() solve rcquircments (l)
antl (3)abovc.
Show how thc solutiort will changc il'the firllowirrg
inlbrnrarion changcs: thc budlLeted variable
costs in the three dcpartmetrts are
"560,000,
S70.000. and 555.(X)0. lirr Hurnan Rcspurces. Mainrc-
nancc, and CAD, rcspectively.

llcler to thc data givcn in the prr'ceding prohlern. When Tampa
Irrstrurncnt Cornpauv estahlishecl its
sen'ice departrncntr. the lirlltru,ing Iong-run neetls u,cr.e
anticipatcd.
758
Exercise 17-17
Drrect lv4ethoC of Senice
Deilartment Cost Allocation;
Bank
Exercise 17-18
Step-Donn fulethod of Service
Department Cost Allocation;
Bank
Exercise 17-19
Servrce Department Cost
Allocation Use of lnlernet
Exercise 17-21
Belative-Sales-Value lVethoc:
Joint Cost Allocation
Ftercise17-22
ItJet-Bealizable-Value l,1ethod

Joint Cost Allocatton
Joint Gost Careal
$30,000 Yummies
wrvw. allstatc.corn
wwu.ttallo.corn
www.mavo.crltr
www. sheraton.corl
wn w.disncy.corn
Ghapter 17 Allocation of Support ActiviW Costs and Jojnt
Cosis
Tuscaloosa t'r-lttional Bank has two service departments, thc
Human Resources (HR) Department and
thc Cornprtting I)tpartrncnt.'fhc hank has trvo othcr
dcpartn'rcnts that tlircetly scrvictr custorncrs. tl.rc
Deposit Department and the Loan Department. The usage Lrf
the two ser-ice departrnents' output ior thc
year is as folloil's:
Provider of Service
User ol Service
HR
Computing l1ai
urpusr.....,. 60%
loan ....,.,............. ...,.., 30%

The budgeted costs in the two service departments for the year
are as tbllows:
HR ........ .
Computing
Required: {Ise the direct methocl [o al]ocatc the hudgetetl cos[s
r)l thLr HR and C-ornputing departrncnts
to thc Deposit and Loan departments.
Refer to the data given in the prcceding erercise.
Required: Lisc thc 51gp-down mothod lo alkrcatc the hutlgctctl
c()sts ol rhe FIII and Conrputing
departnrents to thc Deposit and Loan departnrents. Tuscaloosa
Nationrl Rank allocates thc costs Lrl the
HR Department first.
Visit thc Web srte of one of the iollowing r,rrganizations" or a
cliflerent organization of vour choosinc.
1 57"
50Yo
$1 53 000
225,500
Required: Read ahout the organization's activities and
operations. Then list three act:ivities that you
thtnk the organization woulcl nced that would likely he
cstahlishcd as scrvice deparrments. F-or what pur-
poses would it be relevant lo allocate those service departrnent
costs to nonservice departments within

the organization?
Exercise 17-20
Physical-Uriits h/ethcd, Joint Breaklasttime Cereal Company
manufactures two breaklhst cereals in a jornr process. Cost and
quanriry
Cost Allocation information is as ibllows:
{Lo 4}
Crummies
Quantity at Split-0ff Point
12,000 kilograms
8,000 kilograms
Sales Prics per Kilograrr
$2.00
2.54
production cost betweenHequired: Use the physical-units
method to allocate the company,s joint
Yummies and Crummies.
Refer to the data given in the preceding exercise.
Required: Use the relative-sales-value rnethod to allocate
Breakfasttirne Cereal Company's joint production
crrsl hclu(rn Yumrilics rnd Crummies.
Refer to the data given in Exercise 1 7-20. Breaktasttime Cereai
Company has an opportunity to process
its Crurnmies further into a mulch for ornamental shrubs. The

additioaal processing operation costs $.50
per kilogram, and the mulch will sell for $3.50 per kilogram.
Ghapter I Absorption and Variable Cosiing
Required:
l. ('onrputc thc product oost pcr container ol'liozen rogurt under
(a) variahle costing arcl
(i) absorption costir)g.
2. I)reparc inconrc statcnrcnts lirr 20x I using (a) absoqrtion
costing and (/l) r,ariahlc c(rsting.
3. I{cconcilethcittcotncreportcdunderthetomethodsbl
listingthetrioke_r'placcsshcrethc
inconrc stalenrents di Ilcr.
d. fleconcile the incorne reportcd r-mdcrthe trio r.nelhods using
thc shortcul nreth()d.
5. ( onstruct an l:xcel spreadshcct to solve all ol'the prececling
rcquircnterrts.
Shoii how the solution rrill change if'the firlloriing inftrnlation
changes: the selling price and
rlirecl-matcrial cost pe r unit alc $ l(r.()0 and $.1.-i0. rcspecti
cl]'.
Relcr to thc inl'ornration gir en in the prececling problern lbr
Skinny [)ippers. Inc. Assunte thal the conl-
pany has uttrrntil/etl spending firr direct labor and
rlanutircturing orcrhead: ilirect ntateriai is thc onir
unit-level production cost.

Required:
L C'ontptttc the cost o1'Skinnl I)ippers'year-cnd tinished-goocls
invcntorv using tlrnruglrput costing.
2. I)reparc an inconre statcrnent lirr 20r I usine throughput
c():Lins.
l. Ilrieflr crplain the dillerencc bct*ccn gross rnargirr cornputcd
undcr absoqrtion custing and gnrss
nrargin conrputccl unrlcr throughpLrt costing.
-1. ('ottstruct an lrrcel sprcaclshcct to solve recluircment (2)
above. Shorv horv
thc solutitxr lill changc il-thc lblloriing inlbrnration changcs.
thc selling price atrd dircct-material
cosl per unit arc $ I 6.00 and 5-1.-5(1. rcspccti el.
tliosstone ('orn1tan1 began opcralior.rs un Januan I to procluce
a single product. It Lrsed an absorp-
liou costing s-rstcm uith a 1:rlanncd production r.olunrc
ol'100"000 units. Durins its llrst L.ar olopcra-
tiotrs. the planned production roirrnre uas achiecd. and there
cre tlo lixed sclling or adrnirristrative
cpellsos. lnvotltory on [)ccr:nrber i I rvas 20.000 turits. anti
nct irrconrc for thc rear ri'as $2;10.000.
Required:
l. ll Yelloristotte ('onrpartr had usecl variable costing. its net
irrcomc riould ltarc bccn 5220.000.
C ornpr:tc the break-er crr point in units under r ariablc custing.
2. Drar,r,a prolit-volume graph lirr Ycllori,stone ('ontpan_t.
(Usc rariahlc costing.)

Outbacli Corporatiorr nranulitcturcs lcchargcablc llashlights in
lJrisbairc. Australia. Ihe linn Lrse-s an
absorption costing s stcrr lirr inlenral reporting purposcs:
holcrcr, lhc colnpanl is considering usirrg
rariable costillg. [)ata regarding Outback's plannecl alld actual
ope rltions firr ]0r I ftrllou:
Budgeled Costs
Tolal Actual Costs
D'?r"' L......
[Jru,t]. I'L.........
la al - r,t rr uJ: I'tt 'Lt . r , ',-cJ .... .
r'cd -. rr.'..-.'in . n, ,n ..
Variahl. s"lrn! - Jr l- .
'oLJ 'rJ, td F.
!xr.3fil 1il;6i-i5,alivc ",1r, sej
F red adr nistrative expe,rses
rrt
rl ... $6.620 00c
341
Problem &-22
Straightforward Problenr on
Througlrput Costing
Problem 8-23
Absorption anC Variable
::osting. CVP Anal;,s s

Problem 8-24
Varable versus Absorption
Coslingr JIT
$ r 2.0i
L00
,1.0t
5.00
B.00
7.C0
204
3.00
ryli!
$r,1i80,000
r,260,000
560 001)
700,000
1 .t 20,{100
980,000
280 000

420,000
$7 000,000
.15,000
I 4U 000
1 10 t]cc
si,56t],00c
l,1 lu.{J00
520 U(]C
714r,000
r ,000 00c
980 C00
250 000
425.AAA
3:.0tiil
1 2i, (l,l'l
1 38.lrilil
Beginn ng fir shed gcods inven;ory in uiiits .. . . . ..... . .
Sales in units

PioCuctrcn rn,;rits
340
Exercise &18
Variable Costing and
Cost-Volume-Prof it Analysis
ffi ExerciseS-l9
Absorption versus Variable
Costing
{r0 1}
Exercise 8-20
Absorption, Variable, and
Throughput Costing; Use of
lnternet
Problems
fl.#ffi:
Skaightfonvard Problem on
Absorption versus Variable
Costing

(10 2,3,4)
2(a). Net incomer $200 000
3, Cost of goods sold
under absorption costing:
$r 500,00c
2. Calcr"rlate Bianca
the CVP graph.
3. Explain u'hy variable
would be.
Infonnation taken from Allied
Direct material used .....
Direct labor
Variable manufacturing
Fixed manufacturng overhead
Variable selling and
Fixed selling and
Required:
l. Assuming Allied
year.
2. Compute the
(CMA, adapted)

Visit
Firestone
Motorola
Texas Instruments
Toyota
Xerox Clorporation
costing, compute the inventoriable costs fbr the
Chapter 8 Absorption and Variable Costing
Ilefer to the data given in the preceding exeroise lor Ilianca
Bicycle Company.
Required:
1 Prepare a graph fbr the compan)'. (Scale the vertical axis in
millions of dollars.
and drawthe up through 15,000 units on the horizontal axis.)
Companl''s break-cven point in units, and shor.v the break-even
point on
is more compatible rvith your CVP graph than absorption
costing
Cornpany's records for the most recent year is as follows:
$340,000

1 60,000
75,000
r 25,000
70,000
37,000
inventoriahle costs variable costing.
Veb site fbr one ofthe following companies. or a diflerent
company. ofyour choosing.
rvurr,.cocacola. oom
wrvw.firestone.com
rvnu,.l.tototola.com
wr.vw.ti.con.r
,wwtoy0ta.com
'WlXerOX.COm
Required: Read about the company's products and operations.
Discuss the pros and cons ol'absorp-
tion. variable. and throughput costing as thc basis fbr product
costing ifthe firm uses cost-based pricing.
At[ applicable Problems are available with McGraw-Hitl's
Connect Accountingr.
Sales price

Direct material
Direct labor
Variable overhead
ffi cormect"
iAcCoUTTINc
Skinny Dippers. Inc. produces nonfht frozen logurt.'fhe product
is sold in fir,e-gallon containers, which
have the fbllorving price and variable costs.
$15
5
2
3
Budgeted fixed overhead in 20x1, the company's first year
oloperations, w-as $300,000. Planned and
actual production was 150.000 five-gallon containcrs, ofrvhich
125.000 were sold. Skinny Dippers, lnc.
incurred the lbllowing selling and administrative expenses.
Fixed $50,000 for the year
$1 per container soldVariable
I

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