Support department cost allocationHooligan Adventure Supply produces and sells various outdoor equipment. The Molding and Assembly production departments are supported by the Personnel andMaintenance departments. Personnel costs are allocated to the production departments based on the number of employees, and Maintenance costs are allocated based onnumber of service calls. Information about these departments is detailed in the following table:PersonnelMaintenanceMoldingAssemblyDepartmentDepartmentDepartment DepartmentNumber of employees28104149Number of service calls5741168112Department cost$15,000$11,400$72,000$69,0001. Which of the following statements matches the sequential method of cost allocations?a. Support departments are often allocated in order from lowest to the highest cost with preference given to the departments that serve few support departments andhave no accurate cost drivers.b. Support departments are often allocated in order from highest to lowest cost with preference given to the departments that serve many support departments and haveaccurate cost drivers.c. The sequential method only allocates costs to departments that have a high profit margin.d. None of the above.Which department should be allocated first and identify the reason.Personnel departmentReason:a. It has the lowest departmental cost with no accurate cost driverb. It has the highest departmental cost with no accurate cost driver. 2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method.MaintenanceMoldingAssemblyDepartmentDepartmentDepartmentPersonnel Department cost allocation$1,500X24XMaintenance Department cost allocation$7,7403. Which allocation method is usually the most accurate?a. Direct method.b. Reciprocal method.c. Sequential method.d. None of the above.What is a potential disadvantage of the reciprocal method?a. It is the most complex method of cost allocation.b. Both fixed and variable costs are allocated based on the computed cost base.c. It considers the support department cost as its own department cost.d. All the above.a

Part 1: b and personal department.

2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method. Maintenance Molding Assembly Department Department Department Personnel Department cost allocation 1,500 V 2$ $ Maintenance Department cost allocation$ $4 7,740 X 3. Which allocation method is usually the most accurate? a. Direct method. b. Reciprocal method. c. Sequential method. d. None of the above. What is a potential disadvantage of the reciprocal method? a. It is the most complex method of cost allocation. b. Both fixed and variable costs are allocated based on the computed cost base. c. It considers the support department cost as its own department cost. d. All the above. a

2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method. Maintenance Molding Assembly Department Department Department Personnel Department cost allocation 1,500 V 2$ $ Maintenance Department cost allocation$ $4 7,740 X 3. Which allocation method is usually the most accurate? a. Direct method. b. Reciprocal method. c. Sequential method. d. None of the above. What is a potential disadvantage of the reciprocal method? a. It is the most complex method of cost allocation. b. Both fixed and variable costs are allocated based on the computed cost base. c. It considers the support department cost as its own department cost. d. All the above. a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Support department cost allocation
Hooligan Adventure Supply produces and sells various outdoor equipment. The Molding and Assembly production departments are supported by the Personnel and
Maintenance departments. Personnel costs are allocated to the production departments based on the number of employees, and Maintenance costs are allocated based on
number of service calls. Information about these departments is detailed in the following table:
Personnel
Maintenance
Molding
Assembly
Department
Department
Department Department
Number of employees
28
10
41
49
Number of service calls
57
41
168
112
Department cost
$15,000
$11,400
$72,000
$69,000
1. Which of the following statements matches the sequential method of cost allocations?
a. Support departments are often allocated in order from lowest to the highest cost with preference given to the departments that serve few support departments and
have no accurate cost drivers.
b. Support departments are often allocated in order from highest to lowest cost with preference given to the departments that serve many support departments and have
accurate cost drivers.
c. The sequential method only allocates costs to departments that have a high profit margin.
d. None of the above.
Which department should be allocated first and identify the reason.
Personnel department
Reason:
a. It has the lowest departmental cost with no accurate cost driver
b. It has the highest departmental cost with no accurate cost driver.

2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method.
Maintenance
Molding
Assembly
Department
Department
Department
Personnel Department cost allocation
$
1,500
X
24
X
Maintenance Department cost allocation$
7,740
3. Which allocation method is usually the most accurate?
a. Direct method.
b. Reciprocal method.
c. Sequential method.
d. None of the above.
What is a potential disadvantage of the reciprocal method?
a. It is the most complex method of cost allocation.
b. Both fixed and variable costs are allocated based on the computed cost base.
c. It considers the support department cost as its own department cost.
d. All the above.
a

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