BUS 5483 Exam 2 Review

When allocating joint costs, Feinberg calculates the final sales value of the various products manufactured and subtracts appropriate separable costs. The company is using the:

net-realizable-value method

Which of the following methods should be selected if a company terminates all processing at the split-off point and desires to use a cost-allocation approach that considers the "revenue-producing ability" of each product?

relative-sales-value method

Rave Reviews Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Cafeteria30 Human Resources70 Machining400 Assembly600 Rave Reviews uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,980,000, how much of the department's cost would be allocated to Machining? (Do not round your intermediate calculations.)

$792,000 (1,980,000 x [400 / {400 + 600}]) (400 ÷ 1,000 = 40.00%; 40.00% × $1,980,000 = $792,000.)

Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 19 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $100,000. In an attempt to more equitably distribute quality-control costs, management is considering activity-based costing. The monthly data shown in the following chart have been gathered for Satin Sheen makeup. Activity Cost PoolCost DriverPool RatesQuantity of Driverfor Satin SheenIncoming material inspectionType of material$25.00 per type 25typesIn-process inspectionNumber of units 0.27 per unit 35,000unitsProduct certificationPer order 150.00 per order 80orders Required: 1. Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under each of the following product-costing systems. a. Traditional system, which assigns overhead on the basis of direct-labor cost. b. Activity-based costing. 2. Does the traditional product-costing system overcost or undercost the Satin Sheen product line with respect to quality-control costs? By what amount?

19,000, 22,075, undercosts, 3,075 (19% × $100,000 =$19,000, The traditional product-costing system undercosts the Satin Sheen product line, with respect to quality-control costs, by $3,075 ($22,075 - $19,000).)

The following tasks are associated with an activity-based costing system:1— Assignment of cost to products2— Calculation of pool rates3— Identification of cost drivers4— Identification of cost poolsWhich of the following choices correctly expresses the proper order of the preceding tasks?

4, 3, 2, 1 (The order of tasks in an activity-based costing system are: identification of cost pools, identification of cost drivers, calculation of pool rates, and assignment of cost to products.)

Aldo Industries, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows. Human Resources 18,000 Building Maintenance 25,000 Machining 30,000 Assembly 38,000 Assuming use of the direct method, over how many square feet would the Building Maintenance cost be allocated (i.e., spread)?

68,000 (Machining + Assembly = 30,000 + 38,000 = 68,000 sq. ft.)

Which of the following would not be considered a service department in a hospital?

Cardiac Care

Which of the following choices correctly denotes the data needed to allocate joint costs under the relative-sales-value method? Sales Value of Product at Split-Off Separable Cost Sales Value of Product After Processing Beyond Split-Off A.YesYesNo B.YesYesYes C.YesNoNo D.NoYesYes E.NoNoYes

Choice C (Data needed to allocate joint costs under the relative-sales-value method is sales value of product at split-off.)

Which of the following methods ignores the fact that some service departments provide service to other service departments?

Direct Method (The direct method ignores service departments providing service to other service departments.)

Consider the following statements about the direct method of service department cost allocation: i. Under the direct method, all service department costs are eventually allocated to production departments. ii. The order in which service department costs are allocated to production departments is important. iii. Once a service department's costs have been allocated, no costs are re-circulated back to that department. Which of the above statements is (are) correct?

I & III.

Consider the following statements regarding traditional costing systems: I. Overhead costs are applied to products on the basis of volume-related measures. II. All manufacturing costs are easily traceable to the goods produced. III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements. Which of the above statements is (are) true?

I & III.

Consider the following statements about service department costs: The costs of the Human Resources Department in a manufacturing organization must be allocated to production departments in order to achieve a correct costing of inventory. The allocation of service department costs requires that an organization select both an allocation base and an allocation method. Service department cost allocations are more relevant for firms involved in service industries (e.g., repair, health care) than for those involved with manufacturing. Which of the above statements is (are) correct?

I and II

Consider the following statements regarding product-sustaining activities: I. They must be performed for each batch of product that is made. II. They must be performed for each unit of product that is made. III. They are needed to support an entire product line. Which of the above statements is (are) true?

III only.

The Buckaneer Clinic has two service departments (Human Resources and Information Resources) and two "production" departments (In-patient Treatment and Out-patient Treatment). The service departments service the "production" departments as well as each other, and studies have shown that Information Resources provides the greater amount of service. Which of the following allocations would occur if Buckaneer uses the direct method of cost allocation?

Information Resources cost would be allocated to In-patient Treatment.

Lowrey Chemical manufactures two industrial chemicals in a joint process. In October, $300,000 of direct materials were processed at a cost of $400,000, resulting in 11,000 pounds of Pentex and 9,000 pounds of Glaxco. Pentex sells for $20 per pound and Glaxco sells for $30 per pound. Management generally processes each of these chemicals further in separable processes to manufacture more refined products. Pentex is processed separately at a cost of $10.00 per pound, with the resulting product, Pentex-R, selling for $60 per pound. Glaxco is processed separately at a cost of $20 per pound, and the resulting product, Glaxco-R, sells for $90 per pound. Required: Compute the company's total joint production costs. Assuming that total joint production costs amounted to $700,000, allocate these costs by using: (1) The physical-units method; (2) The relative-sales-value method; (3) The net-realizable-value method.

Joint production costs total $700,000 ($300,000 + $400,000). B. Pentex 11,000 [11/20 x 700,000 = $385,000] Glaxco 9,000 [9/20 x 700,000 = 315,000] 20,000 $700,000 C. Pentex (11,000 × $20) $220,000 [22/49 x 700,000 = $314,286] Glaxco (9,000 × $30) 270,000 [27/49 x 700,000 = $385,714] $490,000 $700,000 D. Pentex-R $660,000 $110,000 $550,000 55/118 $326,271 Glaxco-R 810,000 180,000 630,000 63/118 373,729 $1,470,000 $290,000 $1,180,000 $700,000 *Pentex-R: 11,000 × $60; Glaxco-R: 9,000 × $90. **Pentex-R: 11,000 × $10.00; Glaxco-R: 9,000 × $20.

The point in a joint production process where each individual product becomes separately identifiable is commonly called the:

Split-off Point

Which of the following methods would be of little use when allocating service department costs to production departments?

The net-realizable-value method would be of little use when allocating service department costs to production departments.

Many traditional costing systems:

combine widely varying elements of overhead into a single cost pool (Many traditional costing systems combine widely varying elements of overhead into a single cost pool.)

The salaries of a manufacturing plant's management are said to arise from:

facility-level activities

Which of the following is not a broad, cost classification category typically used in activity-based costing?

management-level