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

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 5CE: Refer to Cornerstone Exercise 7.3. Now assume that Valron Company uses the reciprocal method to...

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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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What are the differences between single and dual rate allocation? Explain with suitable examples. b) Provide a numerical example for single rate allocation and dual rate allocation and explain the process of allocating support department costs to the operating department, assuming that: The company has two support departments “S1 & S2” and two operating departments “O1 & O2.” The company use the direct method to allocate support department costs. Note: You are required to provide numerical examples assuming the values of your own and they should not be copied from any sources.
Required:1. Allocate the two support departments’ costs to the two operating departments using the following methods: a. Direct methodb. Step-down method (allocate MR first) c. Step-down method (allocate US first) d. The Algebraic/reciprocal method. 2. Compare and explain differences in the support-department costs allocated to each production department. 3. What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method?
1. In the context of allocating support department costs to production departments, which of the following methods is the easiest but the least accurate? a. Step-down method b. Reciprocal services method c. Sequential method d. Direct method 2. In the context of allocating support department costs to production departments, which of the following methods is the most difficult but the most accurate? a. Reciprocal services method b. Step-down method c. Direct method d. Sequential method considers all inter-support- 3. In the context of allocating support department costs to production departments, the department services and is the most difficult to implement when a large number of departments is involved.
S1 - After service department costs are allocated to other departments, costs are re-circulated back to that service department, under the step method. S2 - When using the direct method of allocating service department costs, it is necessary that the cost of the service department which serves the greatest number of departments is allocated first. a. Only S1 is true b. Only S2 is true c. Both S1 & S2 are true d. Both S1 & S2 are false
The step-down allocation method: a. recognizes the total amount of services that support departments provide to each other b. allocates complete reciprocated costs c. typically begins with the support department that provides the highest percentage of its total services to other support departments d. offers key input for outsourcing decisions
Which method of allocating support department costs is completed by taking the service flows to production departments only and determining each production department's share of that service? Question options: a) average method. b) step method. c) direct method. d) reciprocal method.
Please do not give solution in image format thanku
In each blank next to the following types of indirect expenses and service department expenses, place the identifying letter of the best allocation basis to use to distribute it to the departments indicated.
A department’s conversion costs are equal to the ________ and assigned direct labor costs. Select answer from the options below A. sum of its allocated overhead costs B. difference between its materials costs C. sum of its materials costs D. difference between its allocated overhead costs
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1. Using the simultaneous method to allocate the service departments' costs to the producing departments, how much is the total overhead amount of Service Department E to be allocated? 2. Using the simultaneous method to allocate the service departments' costs to the producing departments, how much of the total overhead amount of Service Department F is to be allocated to Producing Department C ? 3. Using the simultaneous method to allocate the service departments' costs to the producing departments, how much of the total overhead amount of Service Department F is to be allocated to Producing Department D ?
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