What is the Stand-Alone Cost Method?The stand-alone cost method allocates group costs to users as a proportion of the costs that would have been individually incurred by each user. This approach is a relatively simple and understandable method for allocating costs. Example of the Stand-Alone Cost MethodFor example, the field service department and the returns department separately want to ship repaired appliances to two customers located in the same town. To do so individually, the field service department would have to pay $300 in shipping charges, while the returns department would have to pay $150. The company instead decides to rent its own truck and driver to make the deliveries, at a total cost of $330. Under the stand-alone method, the field service department is charged $220 of the delivery cost, under the following formula: $300 Independent field service delivery ÷ ($300 Independent field service delivery + $150 Independent returns department delivery) = 66.67% of total cost of independent deliveries 66.67% x $330 Consolidated delivery = $220 Cost allocation The same formula is used to charge $110 to the returns department. The method that allocates costs in each cost pool using the same rate per unit is known as the ________. C)
single-rate cost allocation method The dual-rate cost-allocation method classifies costs in each cost pool into a ________. B) variable-cost pool
and a fixed-cost pool Which of the following departments would not be considered a service or support department? When using the dual-rate method, the fixed cost allocation is based on ________. Which of the following is a disadvantage of single-rate method? B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest. Which of the following is an advantage of a dual-rate method? D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning. Which of the following is a disadvantage of a dual-rate method? A) It allocates fixed costs on the basis of budgeted long-run usage, which may tempt some managers to underestimate their planned usage. Which of the following is an advantage of using practical capacity to allocate costs? B) is that it focuses management's attention on managing unused capacity The Charmatz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year: Budgeted costs of operating the copying facility Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 120,000 copies and by the Operations Department was 380,000 copies. If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department? : [(310,000) / (90,000 + 310,000)) × $64,000] + (310,000 × $0.05) = $65,100 The Charmatz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year: Budgeted costs of operating the copying facility Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Marketing Department was 120,000 copies and by the Operations Department was 360,000 copies. If a dual-rate cost-allocation method is used, what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs. : [(390,000) / (110,000 + 390,000)) × $66,000] + (360,000 × $0.05) = $69,480 The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year: Budgeted costs of
operating the materials laboratory Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 60,000 technician hours and by the Small Plane Department was 80,000 technician hours. If a single-rate cost-allocation method is used, what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate laboratory costs. ($7,400,000 + (200,000 hours × $75))/ 200,000 hours = $112.00 / per hour used The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year: Budgeted costs of operating the materials laboratory Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 80,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Small Plane Department? Budgeted materials laboratory costs for Small Plane Department = [(110,000 / 200,000) × $8,200,000] + (110,000 × $74) = $12,650,000 ) Illumination Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year: Budgeted costs of operating the plant for 2000 to 3000 hours: Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1500 hours and by the Night Light Division was 800 hours. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs. Flashlight Division cost = [(2000 / 4000) × $500,000] + (2000 × $900) = $2,050,000 When budgeted cost-allocations rates are used ________. B) user departments can determine the amount of service to request and if allowed, can determine whether to use an internal or external resource When actual cost-allocations rates are used, which of the following would be true? C) user divisions are unaware of the allocated amounts until the end of the budget period Under the dual-rate cost-allocation method, when fixed costs are allocated based on actual usage then ________. D) variations in one division's usage affect another division's allocation The costs of unused capacity are highlighted when ________. C) practical capacity-based allocations are used To discourage unnecessary use of a support department, management might ________. B) allocate support department costs based upon user department usage Special cost-allocation problems arise when ________. C) support departments provide reciprocal services to each other and operating departments Which of the following describes who the direct allocation method allocates
support-department costs? C) it allocates each support-department's costs to operating departments only The method that allocates each department's budgeted costs to operating departments only is called ________. Which of the following statements is true about the step-down method? B) it does not recognize the total services that support departments provide to each other Which of the following statements is false with regards to departmental cost allocations? B) the total amount allocated among departments will differ in total depending on the cost allocation method used Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $200,000 are allocated based on the number of employees. The costs of operating departments A and B are $208,000 and $312,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: Number of employees 50 NA 270 630 Using the step-down method, what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Do not round any intermediary calculations.) Maintenance provides the greatest amount of service to support departments, so it is allocated first. Dept B: 690 / (860 + 1230 + 690) × $320,000 = $79,424 Hanung Corp has two service departments,
Maintenance and Personnel. Maintenance Department costs of $310,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $190,000 are allocated based on the number of employees. The costs of operating departments A and B are $200,000 and $300,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: Number of employees 65 NA 280 630 Using the direct method, what amount of Maintenance Department costs will be allocated to Department A? (Do not round any intermediary calculations.) Maintenance Department costs
allocated to Department A = 1270 / (630 + 1270) × $310,000 = $207,211 Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: Which of the following linear equations represents the complete reciprocated cost of the Data Processing Department? B) DP= $70,000 + (3900/ 17,100) PM Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead
costs: Services furnished: What is the complete reciprocated cost of the Plant Maintenance Department? (Do not round any intermediary calculations.) DP = $60,000 + (3600 / 17,000) PM Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis: Budgeted manufacturing overhead costs: Services furnished: Which of the following linear equations represents the complete reciprocated cost of the Personnel Department? C) P = $150,000 + (1000 / 13,100) M Which of the following is one of the methods of allocating support department costs to operating departments that partially recognizes mutual service provided among all support departments? C) sequential allocation method Corny Solutions processes various corn related food items. One of its facilities located in Iowa, performs some initial processing of corn on the cob once it arrives from the corn fields. The corn from that facility will be further processed elsewhere into corn for popping and corn meal. The costs incurred at the Iowa plant would be considered
________. Which of the following would be the case under the stand-alone method of allocating common costs? C) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs Under the incremental method of allocating common costs ________. D) the primary user bears the maximum of the total cost Emrald Corp currently uses a manufacturing facility costing $520,000 per year; 85% of the facility's capacity is currently being used. A start-up business has proposed a plan that would utilize the other 15% of the facility and increase the overall costs of maintaining the space by 12%. If the
stand-alone method were used, what amount of cost would be allocated to the start-up business? Amount allocated = $520,000 × 1.12 × 0.15 = $87,360 Emrald Corp currently uses a manufacturing facility costing $560,000 per year; 90% of the facility's capacity is currently being used. A start-up business has proposed a plan that would
utilize the other 10% of the facility and increase the overall costs of maintaining the space by 11%. If the incremental method were used, what amount of cost would be allocated to the start-up business? Amount allocated = $560,000 × 11% = $61,600 Harbor Corp currently leases a corporate suite in an office building for a cost of $300,000 a year. Only 81% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 19% of the suite and increase the overall costs of maintaining the space by $28,139. If the stand-alone method were used, what amount of cost would be allocated to the start-up business? (Round the final answer to the nearest dollar.) Amount allocated = $328,139 × 0.19 = $62,346 Harbor Corp currently leases a corporate suite in an office building for a cost of $360,000 a year. Only 80% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 20% of the suite and increase the overall costs of maintaining the space by $20,484. If the incremental method were used, what amount of cost would be allocated to the start-up business? Amount allocated = $20,484, the increased cost of maintaining the space Which of the following would be an explicit agreement of reimbursement on a contract? C) contractor agrees with customer before the project begins, on a set price Contract disputes regarding cost allocation can be reduced by defining which
of the following? B) the terms used, such as what constitutes direct labor Cost-plus contracts negotiated with suppliers of the government usually
involves ________. C) the supplier's cost to perform the contact (provide the product or service) plus a fee Which of the following is an example of an allowable cost considered by U.S. government contract? In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because
________. D) no contractor is willing to assume all the risk of receiving a fixed price for the contract ) A company sells a software suite that includes a word processor and spreadsheet applications. The suite sells for $250 and the items are also available separately for $200 (spreadsheet) and $170 (word processor). The spreadsheet app is by far the best seller of the standalone product sales. Using the incremental-revenue allocation method and assuming that the spreadsheet
is the primary product, how much of the $250 revenue from the bundled product sale would be allocated to the spreadsheet and to the word processing products? A) $200 of revenue for the spreadsheet and $50 for the word processor Craylon Corp sells two products X and Y. X sells for $200 and Y sells for $160. Both X and Y sell for $310 as a bundle. What is the revenue allocated to product Y, if product X is termed as the primary product in the bundle? Revenue allocated to Y = $310 - $200 = $110 To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using ________. D) stand-alone product revenues If management wants to choose a method of revenue allocation that best captures the "benefits received" by customers then they would use ________ to allocate revenue to products in a bundle. B) stand-alone revenue-allocation based on selling prices Which of the following methods ranks individual products in a bundle for revenue allocation? B) incremental revenue-allocation method The best method to determining weights for the stand-alone revenue-allocation method is ________. A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products Which of the following best describes the stand-alone revenue-allocation method? A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products Which of the following is not one of the methods used to to allocate the revenues of a bundled product? Which of the following is an example of a bundled product? C) an accounting textbook with an access code to a homework/study system Which of the following is an example of a revenue object? Revenue allocation is used when ________. revenues are related to a particular revenue object but cannot be traced to it in an economically feasible way |