Kizzle’s Crepes Co. produces world famous crepes. The company’s crepes are produced via its Mixing and Cooking activities, which both rely on the Janitorial and Maintenance activities. Kizzle’s management knows the most practical driver of Janitorial costs is square feet, but is uncertain whether to allocate Maintenance costs based on asset value of production equipment, number of service calls, or machine hours. Kizzle’s management estimates that the Cooking and Mixing activities each require about twice as much space as the Maintenance activity. 1. Identify the base for choosing the cost driver. a. The company needs to choose a driver that can be measured practically. b. The company needs to choose the driver that matches the department activity. c. The company needs to choose the driver that matches the support department function. d. All the above.   Identify the driver which cannot be used as cost driver for maintenance cost. a. Square feet. b. Number of service calls. c. Machine hours. d. Asset value of equipment.   2. Assume that Kizzle’s management allocates Maintenance costs based on the number of service calls. Further assume that in a given period, the Janitorial, Mixing, and Cooking activities incur 16, 40, and 24 service calls, respectively, and that the Janitorial and Maintenance costs of that period are $3,000 and $4,200, respectively. Determine the total costs allocated from each support activity to the other three activities using the reciprocal services method. Maintenance cost allocation: Janitorial:   $fill in the blank 3 Mixing:   $fill in the blank 4 Cooking:   $fill in the blank 5 Janitorial cost allocation: Maintenance:   $fill in the blank 6 Mixing:   $fill in the blank 7 Cooking:   $fill in the blank 8 3. The company is considering changing from the reciprocal service method to a simpler method. Why should the company continue with the reciprocal service method? a. It is complex, but more accurate. b. It can be practiced if the company has sufficient resources and capacity. c. The simpler cost allocation methods are less accurate. d. All the above.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question

Support Activity Cost Allocation

Kizzle’s Crepes Co. produces world famous crepes. The company’s crepes are produced via its Mixing and Cooking activities, which both rely on the Janitorial and Maintenance activities. Kizzle’s management knows the most practical driver of Janitorial costs is square feet, but is uncertain whether to allocate Maintenance costs based on asset value of production equipment, number of service calls, or machine hours. Kizzle’s management estimates that the Cooking and Mixing activities each require about twice as much space as the Maintenance activity.

1. Identify the base for choosing the cost driver.

a. The company needs to choose a driver that can be measured practically.

b. The company needs to choose the driver that matches the department activity.

c. The company needs to choose the driver that matches the support department function.

d. All the above.

 

Identify the driver which cannot be used as cost driver for maintenance cost.

a. Square feet.

b. Number of service calls.

c. Machine hours.

d. Asset value of equipment.

 

2. Assume that Kizzle’s management allocates Maintenance costs based on the number of service calls. Further assume that in a given period, the Janitorial, Mixing, and Cooking activities incur 16, 40, and 24 service calls, respectively, and that the Janitorial and Maintenance costs of that period are $3,000 and $4,200, respectively. Determine the total costs allocated from each support activity to the other three activities using the reciprocal services method.

Maintenance cost allocation:

Janitorial:   $fill in the blank 3
Mixing:   $fill in the blank 4
Cooking:   $fill in the blank 5

Janitorial cost allocation:

Maintenance:   $fill in the blank 6
Mixing:   $fill in the blank 7
Cooking:   $fill in the blank 8

3. The company is considering changing from the reciprocal service method to a simpler method. Why should the company continue with the reciprocal service method?

a. It is complex, but more accurate.

b. It can be practiced if the company has sufficient resources and capacity.

c. The simpler cost allocation methods are less accurate.

d. All the above.

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education