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Exercise 17-16 Step-Down Method of Service Department Cost Allocation; College (LO 17-1) Hudson Community College enrolls students in two departments, Liberal Arts and Sciences. The college also has two service departments, the Library and the Computing Services Department. The usage of these two service departments’ output for the year is as follows: Provider of Service User of Service Library Computing Services Library — 20% Computing Services — — Liberal Arts 65% 30% Sciences 35% 50%

The budgeted costs in the two service departments for the year are as follows: Library $1,000,000 Computing Services 460,000

Required: 1. Use the step-down method to allocate Hudson Community College’s service department costs to the Liberal Arts and Sciences departments. (Do not round intermediate calculations.) Explanation 1. Cost allocation using step-down method:

Costs prior to allocation Allocation of Computing Service costs* Allocation of Library costs Total costs allocated to each department

Service Departments Computing Services Library $ 460,000 $1,000,000 $

460,000

Academic Libera

92,000 (2.0/10) $138,000 $1,092,000

709,800 $847,800

Total cost allocated to academic departments

*Allocated first because Computing Services provides service to the Library, but not vice versa.

Exercise 17-17 Direct Method of Service Department Cost Allocation; Bank (LO 17-1) Tuscaloosa National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly service customers, the Deposit Department and the Loan Department. The usage of the two service departments’ output for the year is as follows: Provider of Service User of Service HR

HR

Computing —

20%

Computing

20%

—

Deposit

50%

45%

Loan

30%

35%

The budgeted costs in the two service departments for the year are as follows:

HR Computing

$

165,000 246,000

Required: Use the direct method to allocate the budgeted costs of the HR and Computing departments to the Deposit and Loan departments. (Do not round intermediate calculations.)

Explanation Direct Customer Service Departments Using Services Deposit Provider of Service HR

Cost to Be Allocated $

Computing Total

$

Loan

Proportion Amount

Proportion

Amount

165,000

(5/8)

$103,125

(3/8)

$ 61,875

246,000

(45/80)

138,375

(35/80)

107,625

411,000

$241,500

Grand total

$169,500

$411,000

Problem 17-30 Joint Cost Allocation; Missing Data (LO 17-4)

[The following information applies to the questions displayed below.] Berger Company manufactures products Delta, Kappa, and Omega from a joint process. Production, sales, and cost data for July follow. Delta

Kappa

Omega

Total

5,500

2,900

1,600

10,000

$ 63,000

?

Units produced Joint cost allocation Sales value at split-off

?

? $ 90,000

? $26,250 $175,000

Additional costs if processed further

$

Sales value if processed further

$145,000 $62,500 $57,500 $265,000

8,500 $ 6,500 $ 4,500 $ 19,500

Problem 17-30 Part 1 Required: 1. Assuming that joint costs are allocated using the relative-salesvalue method, what were the joint costs allocated to products

Kappa and Omega? (Do not round intermediate calculations.) Explanation 1. Joint cost allocations using the relative-sales-value method:

Omega: joint  cost    allocation=(Omega's  sales  values at split−offtotal  sales  values at   split−off)×joint    cost                                                                                                                                                                                          =($26,250$175,000)×$90,000=$13,500Omega: joint  cost    allocation=(Omega's  sales   values at split−offtotal  sales  values at  split−off)×joint    cost                                                                                                                                                                                          =($26,250$175,000)×$90,000=$13,500

Kappa: joint cost allocation

Total joint cost − Delta’s allocation − = Omega’s allocation

=$90,000 − $63,000 − $13,500 = $13,500

Summary of joint cost allocations:

Delta$63,000 (given) Kappa 13,500 Omega 13,500 Total$90,000

Problem 17-30 Joint Cost Allocation; Missing Data (LO 17-4)

[The following information applies to the questions displayed below.] Berger Company manufactures products Delta, Kappa, and Omega from a joint process. Production, sales, and cost data for July follow. Delta

Kappa

Omega

Total

Units produced Joint cost allocation

5,500

2,900

$ 63,000

?

Sales value at split-off

?

1,600

10,000

? $ 90,000

? $26,250 $175,000

Additional costs if processed further

$

Sales value if processed further

$145,000 $62,500 $57,500 $265,000

8,500 $ 6,500 $ 4,500 $ 19,500

Problem 17-30 Part 2 2. Assuming that joint costs are allocated using the relative-salesvalue method, what was the sales value at split-off for product Delta? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Explanation 2.

Delta's  joint  cost   allocation=(Delta's   sales  values  at  split−offtotal  sales  values  at   split−off)×joint  

cost                                                                                                                                                                      $63,000=(X$175,000)×$90,000                                                                                                                                                                                                                        X=$63,000×($175,000$90,000)                                                                                                                                                                                                                      X=$122,500Delta's  joint  cost    allocation=(Delta's   sales  values  at  split−offtotal  sales  values  at  split−off)×joint   cost                                                                                                                                                                      $63,000=(X$175,000)×$90,000                                                                                                                                                                                                                        X=$63,000×($175,000$90,000)                                                                                                                                                                                                                      X=$122,500

Delta's sales value at split-off = $122,500

Problem 17-30 Joint Cost Allocation; Missing Data (LO 17-4)

[The following information applies to the questions displayed below.] Berger Company manufactures products Delta, Kappa, and Omega from a joint process. Production, sales, and cost data for July follow. Delta

Kappa

Omega

Total

Units produced Joint cost allocation

5,500

2,900

$ 63,000

?

Sales value at split-off

?

1,600

10,000

? $ 90,000

? $26,250 $175,000

Additional costs if processed further

$

Sales value if processed further

$145,000 $62,500 $57,500 $265,000

8,500 $ 6,500 $ 4,500 $ 19,500

Problem 17-30 Part 3 3. Use the net-realizable-value method to allocate the joint production costs to the three products. (Round the calculation of "Relative Proportion" to the nearest whole percent. Round your final answers to the nearest dollar amount.) Explanation 3. Joint cost allocation using the net-realizable-value method:

Joint Joint Cost Products

$90,000

Sales Value of Final Product

Delta

$145,000

Kappa

Separable Net Allocation Cost of Realizable Relative of Joint Processing Value Proportion Cost $

8,500

$ 136,500

56

$ 50,400

62,500

6,500

56,000

23

20,700

Omega

57,500

4,500

53,000

22

19,800

Total

$ 265,000

$ 19,500

$ 245,500

$ 90,900

Problem 17-25 Dual Allocation of Service Department Costs (LO 17-1, 17-2)

[The following information applies to the questions displayed below.] 1. Joint cost allocations using the relative-sales-value method:

Omega: joint  cost    allocation=(Omega's  sales  values at split−offtotal  sales  values at  

split−off)×joint   

cost                                                                                                                                                                                          =($26,250$175,000)×$90,000=$13,500Omega: joint  cost    allocation=(Omega's  sales   values at split−offtotal  sales  values at  split−off)×joint    cost                                                                                                                                                                                          =($26,250$175,000)×$90,000=$13,500 Kappa: joint cost allocation

Total joint cost − Delta’s allocation − Omega’s = allocation =$90,000 − $63,000 − $13,500 = $13,500

Summary of joint cost allocations:

Delta$63,000 (given) Kappa 13,500 Omega 13,500 Total$90,000

Problem 17-30 Joint Cost Allocation; Missing Data (LO 17-4)

[The following information applies to the questions displayed below.] Berger Company manufactures products Delta, Kappa, and Omega from a joint process. Production, sales, and cost data for July follow. Delta

Kappa

Omega

Total

5,500

2,900

1,600

10,000

$ 63,000

?

Units produced Joint cost allocation Sales value at split-off

?

? $ 90,000

? $26,250 $175,000

Additional costs if processed further

$

Sales value if processed further

$145,000 $62,500 $57,500 $265,000

8,500 $ 6,500 $ 4,500 $ 19,500

Problem 17-30 Part 2 2. Assuming that joint costs are allocated using the relative-salesvalue method, what was the sales value at split-off for product Delta? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Explanation 2.

Delta's  joint  cost   allocation=(Delta's   sales  values  at  split−offtotal  sales  values  at   split−off)×joint   cost                                                                                                                                                                      $63,000=(X$175,000)×$90,000                                                                                                                                                                                                                        X=$63,000×($175,000$90,000)                                                                                                                                                                                                                      X=$122,500Delta's  joint  cost    allocation=(Delta's   sales  values  at  split−offtotal  sales  values  at  split−off)×joint   cost                                                                                                                                                                      $63,000=(X$175,000)×$90,000                                                                                                                                                                                                                        X=$63,000×($175,000$90,000)                                                                                                                                                                                                                      X=$122,500

Delta's sales value at split-off = $122,500

Problem 17-30 Joint Cost Allocation; Missing Data (LO 17-4)

[The following information applies to the questions displayed below.] Berger Company manufactures products Delta, Kappa, and Omega from a joint process. Production, sales, and cost data for July follow. Delta

Kappa

Omega

Total

5,500

2,900

1,600

10,000

$ 63,000

?

Units produced Joint cost allocation Sales value at split-off

?

? $ 90,000

? $26,250 $175,000

Additional costs if processed further

$

Sales value if processed further

$145,000 $62,500 $57,500 $265,000

8,500 $ 6,500 $ 4,500 $ 19,500

Problem 17-30 Part 3 3. Use the net-realizable-value method to allocate the joint production costs to the three products. (Round the calculation of "Relative Proportion" to the nearest

whole percent. Round your final answers to the nearest dollar amount.) Explanation 3. Joint cost allocation using the net-realizable-value method:

Joint Joint Cost Products

$90,000

Sales Value of Final Product

Delta

$145,000

Kappa

Separable Net Allocation Cost of Realizable Relative of Joint Processing Value Proportion Cost $

8,500

$ 136,500

56

$ 50,400

62,500

6,500

56,000

23

20,700

Omega

57,500

4,500

53,000

22

19,800

Total

$ 265,000

$ 19,500

$ 245,500

$ 90,900

Problem 17-25 Dual Allocation of Service Department Costs (LO 17-1, 17-2)

[The following information applies to the questions displayed below.] 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 year just completed is as follows: Provision of Service Output (in hours of service) Provider of Service User of Service HR

HR

Maintenance

CAD

—

—

—

Maintenance

500

—

—

CAD

500

500

—

Machining

5,000

3,000

5,000

Assembly

6,000

3,500

2,000

12,000

7,000

7,000

Total

The budgeted costs in Tampa Instrument Company’s service departments during the year are as follows: HR Variable

Maintenance

CAD

$ 66,000

$ 86,000

$ 66,000

Fixed

240,000

190,000

350,000

Total

$306,000

$276,000

$416,000

When Tampa Instrument Company established its service departments, the following long-run needs were anticipated. Long-Run Service Needs (in hours of service) Provider of Service User of Service HR

HR

Maintenance

CAD

—

—

—

Maintenance

1,000

—

—

CAD

3,000

1,000

—

Machining

3,500

4,000

4,200

Assembly

4,500

2,000

2,800

12,000

7,000

7,000

Total

Required: Use dual cost allocation in conjunction with each of the following methods to allocate Tampa Instrument Company’s service department costs: (1) direct method and (2) step-down method.

Problem 17-25 Part 1 1. 1. Direct method combined with dual allocation.

2. 3. 4.

a. Variable costs b. Fixed costs c. Total costs allocated

Explanation 1. Direct method combined with dual allocation: a. Variable costs:

Production Departments Machining Provider of Service HR

Cost to Be Allocated $

66,000

Proportion*

Assembly

Amount

(5/11) $ 30,000†

Proportion*

Amount

(6/11) $ 36,000†

Maintenance

86,000

(30/65)

39,692†

(35/65)

46,308†

CAD

66,000

(50/70)

47,143

(20/70)

18,857

Total variable cost

$

$116,835††

218,000

$101,165††

Short-run usage proportions Rounded †† $116,835 + $101,165 = $218,000 * †

b. Fixed costs:

Production Departments Machining Provider of Service

Cost to Be Allocated

Assembly

Proportion* Amount

Proportion* Amount

240,000

(35/80) $105,000

(45/80) $135,000†

Maintenance

190,000

(40/60)

126,667

(20/60)

63,333

CAD

350,000

(42/70)

210,000

(28/70)

140,000

HR

Total fixed

$

$

780,000

†

$441,667**

$338,333**

cost

Long-run proportions Rounded ** $441,667 + $338,333 = $780,000 * †

c. Total costs allocated:

Machining Assembly Variable costs$116,835

$101,165

Fixed costs

441,667

338,333

Total costs

$558,502

$439,498

Grand total

$998,000

Problem 17-25 Dual Allocation of Service Department Costs (LO 17-1, 17-2)

[The following information applies to the questions displayed below.] 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 ...