Appendix A, Service Department...

1. In both the direct and step methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. 2. he direct method has the disadvantage that it may leave some service department costs unallocated.

!. "nder the direct method of allocating service department costs, reciprocal services provided among service departments are ignored. #. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step method is used. $. &. (. ). +. 1,. he step method re%uires establishing an order of allocation before service department costs can be allocated to operating departments. he step method of allocating service department costs ta'es into account some, but not all, of the reciprocal services that service departments provide to each other. he step method usually begins with the service department that provides the least amount of service to the other service departments. he total amount of a service department*s variable cost allocated to an operating department should usually be the same at the beginning and at the end of a period. he total amount of a service department*s fixed cost allocated to an operating department should usually be the same at the beginning and at the end of a period. he fixed costs of service departments should be allocated to operating departments at the end of a period in proportion to the amount of capacity the service departments actually use during the period.

11. -or performance evaluation purposes, actual service department costs instead of budgeted service department costs should be allocated to operating departments. 12. An allocation basis for service department costs should reflect how much cost the operating departments can bear. -or this reason, a good allocation base is often the sales of the operating departments. 1!. Services provided among service departments are 'nown as non.value.added activities. 1#. he reciprocal method of allocating service department costs is much simpler than the direct method and as a conse%uence is much more widely used.

1$. All of a service department*s actual costs should be allocated to operating departments to ensure that they are fully recovered. 1&. /hich of the following statements about reciprocal service department costs is correct0 A1 hey are allocated to producing departments under the direct method but not allocated to producing departments at all under the step method. 21 hey are allocated to producing departments under the step method but not allocated to producing departments at all under the direct method.
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Appendix A, Service Department...

41 D1 1(. A1 21 41 D1

hey are not allocated to producing departments under either the direct or the step methods. hey are allocated to producing departments under both the direct and step methods. /hich of the following statements about the step method of allocating service department is correct0 It is a less accurate method of allocation than the direct method. It cannot be used when a company has more than two service departments. It is a simpler allocation than the direct method. It ignores some interdepartmental services.

1). 5rant 4ompany has several service departments that provide services to each other as well as to producing departments within the company. /hich method would be least accurate in allocating the company*s service department costs0 A1 Allocation by cost behaviour. 4 he step method. 1 21 he direct method. D he reciprocal method. 1 1+. 6ariable service department costs should be allocated to operating departments at the end of the period according to which of the following formulas0 A1 2udgeted rate multiplied by budgeted activity. 21 2udgeted rate multiplied by actual activity. 41 Actual rate multiplied by actual activity. D1 2udgeted total cost multiplied by percentage of pea'.period capacity re%uired. 2,. It would be best to allocate fixed service department costs to operating departments at the end of the period, according to which one of the following formulas0 A1 2udgeted rate multiplied by budgeted activity. 21 2udgeted rate multiplied by actual activity. 41 Actual rate multiplied by actual activity. D1 2udgeted total cost multiplied by percentage of pea'.period capacity re%uired. 21. 3iedmont 4ompany has one service department and three operating departments. During a particular year, a substantial variance developed between the actual costs and the budgeted costs of the service department. -or performance evaluation purposes, what should be done with the variance0 A1 Allocated to the operating departments on a basis of usage. 21 Allocated to operating departments, but on some basis other than usage. 41 7ept in the service department, and not charged to the operating departments at all. D1 Allocated to top management at the head office. 22. Suppose a portion of the actual cost incurred by a service department is not allocated to other departments. /hat should be done with the unallocated cost at the end of the period0 A1 Allocated e%ually among the other departments. 21 Allocated among the other departments in proportion to budgeted activity. 41 reated as a variance of the service department. D1 reated as a variance of the other departments.

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Appendix A, Service Department...

2!.

he long.run average or pea'.period needs of operating departments would be the most suitable base for allocating which of the following costs0 A1 he variable element of power costs. 4 otal power costs. 1 21 he fixed element of power costs. D 4osts unrelated to power. 1

2#. /hat allocation method recogni8es that service departments often provide each other with interdepartmental services, and it is therefore considered to be the most accurate method for allocating service department costs to operating departments0 A1 he direct method. 4 he reciprocal method. 1 21 he step method. D he allocation by cost behaviour method. 1 2$. 3ar'er 4ompany has two service departments9 cafeteria and engineering9and two operating departments. he number of employees in each department is given below: 4afeteria ;ngineering <perating Department 1 <perating Department 2 1, #, $,, 2,,

he costs of the 4afeteria are allocated to other departments on the basis of the number of employees in the departments. If these costs are budgeted at =&+,!($, what would be the amount of cost allocated to ;ngineering under the direct method0 A1 = ,. 21 = !,(,,. 41 = !,($,. D1 =1(,!##.

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Appendix A, Service Department...

2oa 4orp. uses the direct method to allocate service department overhead costs to operating departments. Information for the month of >une follows:

/hat would be the amount of maintenance department costs allocated to <perating Department A for >une0 2&. A1 = ),,,,. 21 = ),),,. 41 =1,,,,,. D1 =2,,,,,. 2(. -airview ?ospital has a -ood Services Department that provides food for patients in all other departments of the hospital. -or @ay, variable food costs were budgeted at =! per meal, based on 1$,,,, meals served during the month. At the end of the month, it was determined that 1&,,,, meals had been served at a total cost of =$#,,,,. -or performance evaluation purposes, how much food cost should be charged to other departments at the end of the month0 A1 =#$,,,,. 21 =#),,,,. 41 =$,,&2$ D1 =$1,2,,. 2). Swift 4ompany has a @aintenance Department that does maintenance wor' on all e%uipment in <perating Departments A and 2. he @aintenance Department budgeted variable maintenance costs of =,.2, per machine hour for >une. Actual total variable maintenance costs for the month were =1$,,,,. 2udgeted and actual machine hours in the operating departments for the month were: Department A 2udgeted @achine ?ours Actual @achine ?ours /or'ed Department 2 22,,,, !,,,,,

A1 = &,,,,.

21 = ),2$,.

41 = +,,,,.

-or performance evaluation purposes, how much variable maintenance cost for the month should be charged to Department A at the end of the month0 D1 =1$,,,,.

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Appendix A, Service Department...

2+. /ilson 4ompany maintains a cafeteria for its employees. -or >une, variable food costs were budgeted at =#$ per employee based on a budgeted level of 2,, employees in other departments. During the month, an average of 1+, employees wor'ed in other departments, and actual total food costs were =+,2$,. -or performance evaluation purposes, how much food cost should be charged to other departments at the end of the month0 A1 =),$$,. 21 =+,,,,. 41 =+,2$,. D1 =+,(!(. !,. he @edical Services Department of 4arey 4ompany budgeted =2, of variable medical expenses per employee for @ay, based on 1,,,, employees in operating departments. During @ay, an average of 1,,$, employees were employed in operating departments. Actual total variable medical expenses were =2!,1,, for the month. -or performance evaluation purposes, how much variable medical expenses should be charged to operating departments at the end of @ay0 A1 =2,,,,,. 21 =21,,,,. 41 =22,,,,. D1 =2!,1,,. !1. he fixed costs of 2axter 4ompany*s 3ersonnel Department are allocated to <perating Departments on the basis of direct labour hours. he following data have been provided:

Direct Babour ?ours . Bong.Cun Average Direct Babour ?ours . Actual

<perating Departmen A 1$,,,, 1,,,,,

A1 =22,#,,.

21 =!!,&,,.

41 =!$,,,,.

he fixed costs of the 3ersonnel Department are budgeted at =$&,,,, per year and are incurred in order to support long.run average re%uirements. -or performance evaluation purposes, how much of this fixed cost should be allocated to <perating Department A at the end of the year0 D1 =$2,$,,.

"se the following to answer %uestions !2.!$: /estmore 4ompany has two Service Departments and two <perating Departments. 2udgeted costs and other data relating to these departments are presented below: 2uildin <perating Department g D 3erson A 2 5roun nel ds =$#,,, =2,,,, =&$,,, =),,,,, , ,, ,, ,

Departmental 4osts

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Appendix A, Service Department...

S%uare @etres 1,,,, <ccupied Eumber of 1, ;mployees Direct Babour ?ours

!,,,, $

12,,,, #$

1$,,,, $$ +2,,,,

(&,,,,

he costs of 2uilding D 5rounds are allocated first on the basis of s%uare metres of space occupied. 3ersonnel costs are allocated on the basis of number of employees. he departmental costs for the <perating Departments are overhead costs. 3redetermined overhead rates in the <perating Departments are calculated on the basis of direct labour hours. !2. Assume that the company uses the direct method of allocating Service Department costs to <perating Departments. ?ow much 2uilding D 5rounds cost would be allocated to <perating Department A0 A1 =2,,+,!. 21 =21,&,,. 41 =2#,,,,. D1 =2+,(,,. !!. Assume that the company uses the direct method of allocating Service Department costs. he predetermined overhead rate that would be used in <perating Department 2 would be closest to which of the following0 A1 =1,.,,FDB?. 21 =1,.22FDB?. 41 =11.$,FDB?. D1 =12.,,FDB?. !#. Assume that the company uses the step method of allocating Service Department costs to <perating Departments, and 2uilding and 5rounds costs are allocated first. ?ow much 3ersonnel Department cost would be allocated to <perating Department 20 A1 = ,. 21 =1,(,!&). 41 =1,(,$+,. D1 =112,+(,. !$. Assume again that the company uses the step method. /hat would be the total amount of cost allocated from the two Service Departments to the <perating Departments for the year0 A1 = 2$#,,,,. 21 = )$,,,,,. 41 =1,#$,,,,,. D1 =1,(,#,,,,. "se the following to answer %uestions !&.#,: Cusset 4ompany has two Service Departments and two 3roducing Departments. 2udgeted costs and budgeted activity in the various departments for the most recent year are presented below: 4ustodial Services =2$2,,,, 1,,,, 2, 4afeteria =1#,,,,, 2,,,, !, 4utting Department =&,,,,,, ),,,, 1$, #,,,,, Assembly Department =+,,,,,, 1,,,,, 2,, &,,,,,

<verhead 4osts S%uare @etres of Space <ccupied Eumber of ;mployees @achine ?our

Service Department costs are allocated to 3roducing Departments with the costs of 4ustodial Services allocated first on the basis of s%uare metres of space occupied. he costs of the 4afeteria are allocated on the basis of number of employees. 3redetermined overhead rates in the 4utting and Assembly departments are based on

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Appendix A, Service Department...

machine hours. Cound all calculations to the nearest dollar. !&. "nder the direct method of allocation, what would be the amount of 4ustodial Services cost allocated to the 4utting Department0 A1 = ,. 21 = +&,,,,. 41 =1,,,),,. D1 =112,,,,. !(. "nder the direct method of allocation, what would be the predetermined overhead rate for the year in the Assembly Department0 A1 = !.1(. 21 = !.&(. 41 =1).1(. D1 =1).&(. !). "nder the step method of allocation, what would be the amount of 4ustodial Services cost allocated to the Assembly Department0 A1 = ,. 21 =12,,,,,. 41 =12&,,,,. D1 =1#,,,,,. !+. "nder the step method of allocation, what would be the amount of cost allocated from the 4afeteria to the 4utting Department0 A1 = ,. 21 =&,,,,,. 41 =&1,$,,. D1 =(,,),,. #,. "nder the step method of allocation, what would be the amount of cost allocated from the 4afeteria to 4ustodial Services0 A1 = ,. 21 =(,,,,. 41 =(,$&). D1 =),2&,. "se the following to answer %uestions #1.#2: he >ames 4ompany has four departments with data as follows: Service Departments 4afeteria @aintenance =12,,,, =1,,,,, 12 1, 1,$,, 1,2$, <perating Departments @illing -inishing =#2,,,, =!),,,, )# && $,2$, #,($,

2udgeted 4osts Eumber of ;mployees Babour ?ours

#1. Suppose @aintenance Department costs are allocated on the basis of labour hours. /hat would be the amount of cost allocated to @illing from @aintenance under the direct method0 A1 =$,2$,. 21 =$,&,,. 41 =$,(,,. D1 =&,(2,. #2. Suppose 4afeteria Department costs are allocated on the basis of number of employees and that the step method is used with costs of the 4afeteria Department allocated first. /hat would be the amount of cost allocated from the 4afeteria Department to @aintenance Department0 A1 = ,. 21 =&2$. 41 =&+). D1 =($,. "se the following to answer %uestions #!.##:

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Appendix A, Service Department...

Anderson 4ompany has two Service Departments and two 3roducing Departments. he costs of the 3ersonnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows: 3ersonnel Department ;ngineering Department 3roducing Department Eo. 1 3roducing Department Eo. 2 otal ;mployees #!. ;mployees !, +, $+, 2+, 1,,,,

otal costs in the 3ersonnel Department are =+,,,,,, per year. "nder the step method, the costs of the 3ersonnel Department are allocated before the costs of the ;ngineering Department are allocated. /hat would be the amount of this cost allocated to the ;ngineering Department under the step method, rounded to the nearest dollar0 A1 = ,. 21 =)1,,,,. 41 =)!,$,$. D1 =+2,,#&.

##. /hat would be the amount of 3ersonnel Department cost that would be allocated to 3roducing Department 2 under the direct method0 A1 = ,. 21 =2&1,,,,. 41 =2&+,,(2. D1 =2+&,$+1. "se the following to answer %uestions #$.#): he oville 4ity ?ospital has two Service Departments: ;nergy and ?ouse'eeping. hese two departments provide services to the three <perating Departments: 3ediatrics, Surgery, and ?ealth 4are. he fixed costs of the ;nergy Department are allocated on the basis of 'ilowatt hours G7/?1, and the fixed costs of the ?ouse'eeping Department are allocated on the basis of s%uare metres of space occupied. Data for August are as follows: ;nergy 2udgeted -ixed 4osts Actual -ixed 4osts S%uare @etres Bong.Cun Average 7/? Actual 7/? "sed =1&,,,,, =1&2,,,, $,,,, 2,,,, 2,,,, ?ouse'eeping =2,,,,,, =2,(,,,, $,,,, !&,,,, !,,,,, 3ediatrics .. .. 2,,,,, +,,,,, ($,,,, Surgery .. .. 1,,,,, +,,,,, &,,,,, ?ealth 4are .. .. (,,,,, 1##,,,, 1!$,,,,

he hospital allocates Service Department costs by the step method, starting with the ;nergy Department. he ;nergy Department*s budgeted fixed costs are determined by the long.run average 7/? re%uirements.

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Appendix A, Service Department...

#$. /hat would be the amount of fixed cost allocated from ?ouse'eeping to 3ediatrics for August0 A1 = #,,$,,. 21 = #!,2,,. 41 = ##,&#,. D1 =2,,,,,,. #&. /hat would be the amount of fixed cost allocated from ;nergy to Surgery for August0 A1 =!),+,,. 21 =#,,,,,. 41 =#,,$,,. D1 =#2,,,,. #(. /hat would be the amount of fixed cost allocated from ?ouse'eeping to Surgery for August0 A1 =21,&,,. 21 =22,!2,. 41 =2$,1),. D1 =!$,+),. #). /hat would be the total amount of fixed cost allocated to ?ealth 4are from all Service Departments for August0 A1 = &1,&,,. 21 =1($,),,. 41 =21$,2,,. D1 =221,,#,. "se the following to answer %uestions #+.$2: he @ohaw'.?udson 4ompany is an electric utility which has two Service Departments: Accounting and @aintenance. It has two <perating Departments: 5eneration and ransmission. he company does not distinguish between fixed and variable Service Department costs. @aintenance Department costs are allocated on the basis of maintenance hours of service. Accounting Department costs are allocated to <perating Departments on the basis of accounting hours of service provided. 2udgeted costs and other data for the coming year are as follows: 2udgeted 4osts @aintenance ?ours of Service Accounting ?ours of Service Accounting =1,,,,,, .. $,, @aintenance =2,,,,,, &,, 2,,,, 5eneration =&,,,,,, (,2,, #,$,, ransmission =#,,,,,, #,),, !,$,,

he step method is used to allocate Service Department costs, with the Accounting Department being allocated first. #+. /hat would be the amount of Accounting Department costs allocated to the @aintenance Department0 A1 = ,. 21 =1),,,,. 41 =1+,,#). D1 =2,,,,,. $,. /hat would be the amount of Accounting Department costs allocated to the 5eneration Department0 A1 =!),,,,. 21 =#$,,,,. 41 =#2,)$(. D1 =$(,1#!. $1. /hat would be the amount of @aintenance Department cost allocated to the Accounting Department0 A1 = ,. 21 =&+,!1$. 41 =($,,,,. D1 =)),,,,. $2. /hat would be the amount of @aintenance Department cost allocated to the 5eneration Department0

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Appendix A, Service Department...

A1 =12!,($,.

21 =1!2,,,,.

41 =1#,,,,,.

D1 =1$,,&)$.

"se the following to answer %uestions $!.$$: Ba'eside Eursing ?ome has two <perating Departments: 4ustodial 4are and Cehabilitation. It also has a ?ouse'eeping Department that serves the two <perating Departments. he costs of the ?ouse'eeping Department are all variable and are allocated to the <perating Departments on the basis of labour hours. Data for September follow: 2udgeted Babour ?ours Actual Babour ?ours 4ustodial 4are !,,,, !,2,, Cehabilitation 1,,,, 1,&,,

he budgeted costs of the ?ouse'eeping Department for September were =2#,,,,, and the actual costs were =2+,(&,. $!. -or flexible budget planning purposes, how much ?ouse'eeping Department cost should be allocated to 4ustodial 4are at the start of September0 A1 = &,,,,. 21 = ),,,,. 41 =1&,,,,. D1 =1),,,,. $#. -or performance evaluation purposes, how much ?ouse'eeping Department cost should be charged to Cehabilitation at the end of September0 A1 = (,##,. 21 = +,&,,. 41 = +,+2,. D1 =1+,)#,. $$. -or performance evaluation purposes, how much of the actual ?ouse'eeping Department costs for September should E< be charged to the operating departments0 A1 = ,. 21 = +&,. 41 =1,2#,. D1 =$,(&, "se the following to answer %uestions $&.$): 4ommunity 5eneral ?ospital has a -ood Services Department that provides meals for all patients in the hospital. 2udgeted and actual meals served for the month Hust ended are: @eals Served 2udgeted Actual 3ediatrics Department !,,,,, 2#,,,, Surgical Department $,,,,, (&,,,, otal @eals ),,,,, 1,,,,,, he budgeted variable cost of meals for the month Hust ended was =1,,,,,,I the actual variable cost of meals for the month was =1!,,,,,. $&. -or planning purposes, how much -ood Services variable cost should be allocated to the 3ediatrics Department at the beginning of the current year0 A1 = ,. 21 =!(,$,,. 41 =!+,,,,. D1 =#),($,.

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Appendix A, Service Department...

$(. ?ow much of the =1!,,,,, actual -ood Services variable cost should be allocated to the Surgical Department at the end of the month Hust completed0 A1 =&2,$,,. 21 =&$,,,,. 41 =+$,,,,. D1 =+),),,. $). ?ow much of the =1!,,,,, actual -ood Services cost for the month Hust completed should be 'ept in the -ood Services Department and E< allocated to the other departments0 A1 = ,. 21 = #,,,,. 41 = $,,,,. D1 =!,,,,,. "se the following to answer %uestions $+.&1: Eathan 4ompany has an ;%uipment Services Department that performs all needed maintenance wor' on the e%uipment in the company*s -abrication and Assembly departments. 4ost of the ;%uipment Services Department are allocated to the -abrication and Assembly departments on the basis of direct labour hours. Data for the year Hust completed follow: 2udgeted Direct Babour ?ours Actual Direct Babour ?ours 3ea'.3eriod Direct Babour ?ours -abrication 2,,,,, !,,,,, #,,,,, Assembly &,,,,, (,,,,, ),,,,, otal ),,,,, 1,,,,,, 12,,,,,

-or the year Hust ended, the company budgeted its variable maintenance costs at =2,,,,,, for the year. Actual total variable maintenance costs for the year were =2($,,,,. $+. ?ow much of the =2,,,,,, of budgeted variable maintenance cost was allocated to the -abrication Department at the 2;5IEEIE5 of the year Hust completed0 A1 = $,,,,,. 21 = &,,,,,. 41 = &&,&&(. D1 =1,,,,,,. &,. -or purposes of measuring performance, how much of the =2($,,,, of actual variable maintenance cost should be allocated to the Assembly Department at the ;ED of the year Hust ended0 A1 =11&,+,,. 21 =1$,,,,,. 41 =1($,,,,. D1 =1+2,$,,. &1. ?ow much Gif any1 of the =2($,,,, in variable maintenance cost should E< be allocated to the -abrication and Assembly departments0 A1 = ,. 21 = 2$,,,,. 41 = ($,,,,. D1 =1,),,,,. "se the following to answer %uestions &2.&#: he total fixed costs budgeted for 4aterton*s @aintenance Department for last year were =2),,,,,I total actual fixed costs for the year were =!,),,,,. he level of budgeted fixed costs is determined by pea'.period re%uirements. he @illing Department re%uires 1$F!$ of the pea'.period capacity, and the Assembly Department re%uires 2,F!$.

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Appendix A, Service Department...

&2. -or flexible budget planning purposes, how much fixed maintenance cost should be allocated to the @illing Department at the 2;5IEEIE5 of the year0 A1 =12,,,,,. 21 =1!2,,,,. 41 =1#,,,,,. D1 =1#$,&,, &!. -or purposes of measuring performance, how much fixed maintenance cost should be charged to the Assembly Department at the ;ED of the year0 A1 =1#(,),,. 21 =1&,,,,,. 41 =1(!,$,,. D1 =1(&,,,,. &#. -or performance evaluation purposes, how much of the actual fixed maintenance cost for the year should be 'ept in the @aintenance Department and E< charged to the other departments0 A1 = ,. 21 = 2),,,,. 41 =2),,,,,. D1 =!,),,,,. "se the following to answer %uestions &$.&(: @ueller Industries has a @aintenance Department that services the company*s @illing and Assembly departments. -ixed costs of the @aintenance Department are allocated to these departments on the basis of pea'.period machine hour. Data on machine hours for the year Hust ended follow: 2udgeted @achine ?ours Actual @achine ?ours 3ea'.3eriod @achine ?ours @illing &,,,,, $,,,,, 1,,,,,, Assembly 1#,,,,, 2,,,,,, 2,,,,,, otal 2,,,,,, 2$,,,,, !,,,,,,

he total fixed costs budgeted for the @aintenance Department for the year Hust ended were =$,,,,,,I total actual fixed costs for the year were =$!,,,,,. &$. -or planning purposes, how much of the =$,,,,,, in budgeted fixed costs, rounded to the nearest dollar, should be allocated to the @illing Department at the 2;5IEEIE5 of the year0 A1 = )!,!!!. 21 =1,,,,,,. 41 =1&&,&&(. D1 =2$,,,,,. &&. -or purposes of measuring performance, how much of the =$!,,,,, in actual fixed costs, rounded to the nearest dollar, should be allocated to the Assembly Department at the ;ED of the year0 A1 =!!!,!!!. 21 =!$!,!!!. 41 =!(1,,,,. D1 =#2#,,,,. &(. ?ow much of the =$!,,,,, in actual fixed cost for the year, rounded to the nearest dollar, should be 'ept in the @aintenance Department and not allocated to the other departments0 A1 = ,. 21 =!,,,,,. 41 =)),!!!. D1 =+$,,,,. "se the following to answer %uestions &).&+: he Sherman 4ompany manufactures and sells rowboats and canoes. he company has two <perating Departments: 4arpentry and -inishing. he company also has a @aintenance Department that serves both <perating Departments. he costs in the @aintenance Department are budgeted at =12,,,,, per month plus =,.2$ per labour hour. he budgeted fixed costs are determined by the pea'.period re%uirements. he 4arpentry

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Appendix A, Service Department...

Department re%uires &2.$J of the pea'.period capacity, and the -inishing Department re%uires !(.$J. -or @ay, 4arpentry has estimated that it will operate 1,,,,,, labour hours, and -inishing has estimated that it will operate ),,,,, labour hours. &). -or flexible budget planning purposes, how much @aintenance Department cost should be allocated to 4arpentry at the beginning of @ay0 A1 = (#,$!(. 21 = +2,#,,. 41 =1,,,,,,. D1 =112,$,,. &+. -or flexible budget planning purposes, how much @aintenance Department cost should be allocated to -inishing at the beginning of @ay0 A1 =&$,,,,. 21 =&$,#,,. 41 =&(,$,,. D1 =(,,,,,. "se the following to answer %uestions (,.($: A 4ompany has two Service Departments9S1 and S29and two 3roduction Departments931 and 32. Direct costs for each department and the proportion of service costs used by the various departments for the month of September are as follows: S1 Departments: S1 S2 Direct 4osts . ,.$, =),,,,, 3roportion of Services "sed by S2 31 ,.2, . =1,,,,,, ,.&, ,.1, =1&,,,,, 32 ,.2, ,.#, =1#,,,,,

A 4ompany*s management accountant has formulated the following two e%uations as the first step in using the reciprocal method to allocate the costs of the two Service Departments: S1 K =),,,,, L ,.$, x S2 S2 K =1,,,,,, L ,.2, x S1 Cound all calculations to the nearest dollar in answering the related %uestions. (,. /hat is the value of S1 in the two e%uations0 A1 = ),,,,,. 21 =12),))+. 41 =1!,,,,,. (1. /hat is the value of S2 in the two e%uations0 A1 =1,,,,,,. 21 =12),))+. 41 =1#,,,,,. D1 =1##,###. D1 =1##,###.

(2. /hat is the amount of the total cost of Service Department S1 that should be allocated to Service Department S20 A1 = ,. 21 =1&,,,,. 41 =2),))+. D1 =&#,###. (!. /hat is the amount of the total cost of Service Department S2 that should be allocated to Service Department S10

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Appendix A, Service Department...

A1 =

,.

21 =2).))+.

41 =$,,,,,.

D1 =&#,###.

(#. /hat is the total cost of 3roduction Department 31 after allocation of the total costs of Service Departments S1 and S20 A1 =1&,,,,,. 21 =21),,,,. 41 =2$+,$$&. D1 4annot be determined with the information provided. ($. /hat is the total cost of 3roduction Department 32 after allocation of the total costs of Service Departments S1 and S20 A1 =1#,,,,,. 21 =1+&,,,,. 41 =22,,###. D1 4annot be determined with the information provided. (&. 4entral @edical 4linic has two Service Departments92uilding Services and ;nergy9and three <perating Departments93ediatrics, 5eriatrics, and Surgery. 4entral allocates the cost of 2uilding Services on the basis of s%uare metres and ;nergy on the basis of patient days. Eo distinction is made between variable and fixed costs. 2udgeted operating data for the year Hust completed follow:

Ce%uired: a1 3repare a schedule to allocate Service Department costs to <perating Departments by the direct method, rounding all dollar amounts to the nearest whole dollar. b1 3repare a schedule to allocate Service Department costs to <perating Departments by the step method, allocating 2uilding Services first, and rounding all amounts to the nearest whole dollar.

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Appendix A, Service Department...

((. Delta @anufacturing 4ompany has two Service Departments94ustodial Services and @aintenance9 and three 3roduction Departments94utting, @illing, and Assembly. Delta allocates the cost of 4ustodial Services on the basis of s%uare metres and @aintenance on the basis of labour hours. Eo distinction is made between variable and fixed costs. 2udgeted operating data for the year Hust completed follow:

Ce%uired: a1 3repare a schedule to allocate Service Department costs to the 3roduction Departments by the direct method, rounding all dollar amounts to the nearest whole dollar. b1 3repare a schedule to allocate Service Department costs to the 3roduction Departments by the step method, allocating 4ustodial Services first, and rounding all amounts to the nearest whole dollar. (). -linders 4ompany has two Service Departments9-actory Administration and @aintenance9and two <perating Departments. Selected information relating to these departments is given below:

he company allocates Service Department costs by the step method. -actory Administration costs are allocated first on the basis of number of employees, and then @aintenance costs are allocated on the basis of total labour hours. Ce%uired: 3repare a schedule showing the allocation of Service Department costs to other departments.

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Appendix A, Service Department...

(+. ?ancoc' 4ompany has two Service Departments9-actory Administration and @aintenance9and two 3roducing Departments. Selected information relating to these departments follow:

he company allocates Service Department costs using the step method. 4osts of -actory Administration are allocated on the basis of the number of employees. 4osts of @aintenance are allocated on the basis of labour hours. Allocation begins with the -actory Administration Department. Ce%uired: 3repare a schedule showing the allocation of Service Department costs to the other departments.

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Appendix A, Service Department...

),. Beslie 4ompany operates a cafeteria for the benefit of its employees. he company subsidi8es the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. 2udgeted and actual costs in the cafeteria for the year Hust ended are as follows: 6ariable 4osts -ixed 4osts 2udgeted =$,,,,,, =!#,,,,, Actual =#!&,,,, =!$2,,,,

he variable costs are after deducting budgeted or actual amounts to be recovered or recovered from employees. 4osts of the cafeteria are allocated to 3roducing Departments on the basis of the number of employees in these departments. -ixed costs are allocated on the basis of the pea'.period number of employees. Data on employees in the company*s 3roducing Departments follows:

Ce%uired: a1 4alculate the dollar amount of variable and fixed costs that should be allocated to each of the 3roducing Departments at the beginning of the year for planning purposes. b1 4alculate the dollar amount of variable and fixed costs that should be allocated to each of the 3roducing Departments at the end of the year for purposes of evaluating performance. Identify the amount, if any, of actual costs that should E< be allocated to the <perating Departments.

3age 1(

Appendix A, Service Department...

)1. Standard 4ompany operates a daycare centre for the benefit of its employees. he company subsidi8es the daycare centre heavily. 2udgeted and actual costs for the daycare centre for the year Hust completed are as follows: 6ariable 4ostsM -ixed 4osts 2udgeted =(,,,,,, =#2,,,,, Actual =(#,,,,, =##,,,,,

M "nrecovered cost after deducting amounts received from employees 4osts of the daycare centre are allocated to <perating Departments on the basis of the number of employees in these departments. -ixed costs of the daycare centre are allocated on the basis of the pea'.period number of employees. Data on employees in the company*s <perating Departments follow:

Ce%uired: a1 4alculate the dollar amount of variable and fixed costs that should be allocated to each of the <perating Departments at the beginning of the year for planning purposes. b1 4alculate the dollar amount of variable and fixed costs that should be allocated to each of the <perating Departments at the end of the year for purposes of evaluating performance. Identify the amount, if any, of actual costs that should E< be allocated to the <perating Departments.

3age 1)

Appendix A, Service Department...

)2. 5abrit8, Inc. has a @aintenance Department that provides services to the company*s two <perating Departments. he variable costs of the @aintenance Department are allocated on the basis of the number of maintenance hours logged in each department. Bast year, budgeted variable maintenance costs were =(.$, per maintenance hour, and actual variable maintenance costs were =(.), per maintenance hour. he budgeted and actual maintenance hours for each <perating Department for last year appear below:

2udgeted @aintenance ?ours Actual @aintenance ?ours

<perating Departmen A !,,,, !,1,,

Ce%uired: a1 4alculate the amount of variable @aintenance Department cost that should have been allocated to each <perating Department at the beginning of the year for flexible budget planning purposes. b1 4alculate the amount of variable @aintenance Department cost that should have been charged to each <perating Department at the end of the year for performance evaluation purposes. c1 4alculate the amount of actual variable @aintenance Department cost that should E< have been charged to the <perating Departments at the end of the year for performance evaluation purposes. )!. Smurnov 4ompany has a 3urchasing Department that provides services to two factories in exas. <ne is located in Austin and the other in 2elmont. 2udgeted costs for the 3urchasing Department consist of =+1,,,, per year of fixed costs and =( per purchase order for variable costs. he level of budgeted fixed costs is determined by the pea'.period re%uirements. he Austin factory re%uires !F( of the pea'.period capacity, and the 2elmont factory re%uires #F(. During the coming year, 2,(,, purchase orders are budgeted for the Austin factory and !,+,, purchase orders for the 2elmont factory. Ce%uired: 4alculate the amount of 3urchasing Department cost that should be allocated to each factory at the beginning of the period for flexible budget planning purposes. G he company allocates fixed and variable costs separately.1

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Appendix A, Service Department...

)#. /arehouse Services is a Service Department in the /erner 4ompany, providing storage service to three <perating Departments. he company allocates the costs of this department to <perating Departments on the basis of cubic metres occupied. Bast year, /arehouse Services budgeted variable storage costs of =,.1$ per cubic metre occupied, and fixed costs of =12,,,,,. Actual storage space occupied during the year, along with long.term storage needs of <perating Departments, is given below:

Actual variable storage costs amounted to =,.1& per cubic metre occupied. Actual fixed storage costs were =12!,,,,. Ce%uired: a1 4alculate the amount of variable storage cost that should be charged to each <perating Department at the end of the year for performance evaluation purposes. b1 4alculate the amount of fixed storage cost that should be charged to each <perating Department at the end of the year for performance evaluation purposes.

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Appendix A, Service Department...

Answer Key

1.

rue Difficulty: @edium 2. -alse Difficulty: @edium !. rue Difficulty: ;asy #. -alse Difficulty: @edium &. (. ). +. 1,. 11. 12. 1!. 1#. 1$. 1&. 1(. 1). 1+. 2,. 21. 22. rue$. Difficulty: rue Difficulty: -alse Difficulty: -alse Difficulty: rue Difficulty: -alse Difficulty: -alse Difficulty: -alse Difficulty: -alse Difficulty: -alse Difficulty: -alse Difficulty: D Difficulty: D Difficulty: 2 Difficulty: 2 Difficulty: D Difficulty: 4 Difficulty: 4 Difficulty: @edium ;asy @edium @edium @edium @edium @edium ;asy @edium ;asy @edium @edium @edium ;asy @edium @edium @edium @edium

3age 21

Appendix A, Service Department...

2!. 2 Difficulty: @edium 2#. 4 Difficulty: ;asy ype: 4@A adapted 2$. A Difficulty: @edium 2&. 4 Difficulty: @edium 2(. 2 Difficulty: @edium 2). A Difficulty: @edium 2+. A Difficulty: @edium !,. 2 Difficulty: @edium !1. 2 Difficulty: @edium !2. 4 Difficulty: @edium !!. 2 Difficulty: @edium !#. D Difficulty: @edium !$. A Difficulty: @edium !&. D Difficulty: @edium !(. D Difficulty: ?ard !). 4 Difficulty: @edium !+. D Difficulty: @edium #,. A Difficulty: @edium #1. A Difficulty: @edium #2. D Difficulty: @edium #!. 4 Difficulty: @edium ##. D Difficulty: @edium #$. 2

3age 22

Appendix A, Service Department...

#&. #(. #). #+. $,. $1. $2. $!. $#. $$. $&. $(. $). $+. &,. &1. &2. &!. &#. &$. &&. &(. &).

Difficulty: 2 Difficulty: A Difficulty: 4 Difficulty: D Difficulty: 2 Difficulty: A Difficulty: 2 Difficulty: D Difficulty: 2 Difficulty: 2 Difficulty: 2 Difficulty: 4 Difficulty: 4 Difficulty: A Difficulty: 4 Difficulty: 2 Difficulty: A Difficulty: 2 Difficulty: 2 Difficulty: 4 Difficulty: A Difficulty: 2 Difficulty: 4

@edium @edium @edium @edium @edium @edium @edium @edium @edium @edium ?ard @edium @edium @edium @edium @edium @edium ;asy @edium ?ard @edium @edium @edium

3age 2!

Appendix A, Service Department...

&+. (,. (1. (2. (!. (#. ($.

Difficulty: A Difficulty: D Difficulty: 2 Difficulty: 4 Difficulty: D Difficulty: 4 Difficulty: 4 Difficulty:

@edium @edium ?ard ?ard ?ard ?ard ?ard ?ard

3age 2#

Appendix A, Service Department...

(&. a1 Direct method:

b1 Step method:

Difficulty: @edium
3age 2$

Appendix A, Service Department...

((. a1 Direct method:

b1 Step method:

Difficulty: ?ard
3age 2&

Appendix A, Service Department...

().

Difficulty: @edium (+.

Difficulty: @edium

3age 2(

Appendix A, Service Department...

),. a1 2udgeted variable rate: =$,,,,,, F ),, employees K =&2$ per employee -ixed costs are allocated on the basis of pea'.period number of employees: @achining, #,JI Assembly, &,J

b1 6ariable costs are allocated at the budgeted rate of =&2$ per employee. -ixed costs are allocated in the same predetermined lump.sum amounts as at the beginning of the year.

he remaining amounts of variable and fixed costs are variances that should not be allocated:

Difficulty: @edium

3age 2)

Appendix A, Service Department...

)1. a1 2udgeted variable rate: =(,,,,,, F 1,,,, employees K =(,, per employee -ixed costs are allocated on a basis of pea'.period number of employees: 4utting, 2$JI Assembly, 2$JI 3ac'aging, $,J

b1 6ariable costs are allocated at the budgeted rate of =(,, per employee. -ixed costs are allocated in the same predetermined lump.sum amounts as at the beginning of the year.

he remaining amounts of variable and fixed costs are variances that should not be allocated:

Difficulty: @edium

3age 2+

Appendix A, Service Department...

)2.

Difficulty: @edium )!.

Difficulty: @edium )#. a1 Dept A: 1&,,,,, x =,.1$ K =2#,,,, Dept N: $+,,,,, x =,.1$ K =)),$,, Dept O: ($,,,,, x =,.1$ K =112,$,, b1 Dept A: G2,, F 1&,,1 x =12,,,,, K =1$,,,, Dept N: G&,, F 1&,,1 x =12,,,,, K =#$,,,, Dept O: G),, F 1&,,1 x =12,,,,, K =&,,,,, Difficulty: @edium

3age !,