Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 40P
To determine
Ascertain the cost allocated using each method of allocation.
Expert Solution & Answer
Explanation of Solution
a) Direct method:
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
Table (1)
Compute the base for allocation of indirect costs:
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | ||
| First phase allocation | $6,000 | $122,000 | ||
| Information Technology | $6,250 | $18,750 | ||
| Administration | $2,500 | $3,750 | ||
| Total Amount Allocated | $14,750 | $144,500 | ||
Table (2)
Compute the total costs allocated:
| Information Technology | ||
| Particulars | Education | Program Management |
| Service percentage | 20% | 60% |
| Allocation percentage | 25.00% | 75.00% |
| Allocation amount ($14,750) | $3,688 | $11,063 |
| Administration | ||
| Particulars | Education | Program Management |
| Service percentage | 30% | 60% |
| Allocation percentage | 33.3333% | 66.6667% |
| Allocation amount ($144,500) | $48,167 | $96,333 |
| Particulars | Education | Program Management |
| Information Technology | $3,688 | $11,063 |
| Administration | $48,167 | $96,333 |
| Total Amount Allocated | $51,854 | $107,396 |
| Particulars | Education | Program Management |
| First phase allocation | $100,000 | $190,000 |
| Indirect labor costs | $12,500 | $12,500 |
| Indirect supplies costs | $3,750 | $5,000 |
| Information Technology | $3,688 | $11,063 |
| Administration | $48,167 | $96,333 |
| Total Amount Allocated | $168,104 | $314,896 |
Table (3)
Compute the further allocation of the costs:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Service percentage | 50% | 50% |
| Allocation percentage | 50% | 50% |
| Allocation amount ($168,104) | $84,052 | $84,052 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Service percentage | 25% | 75% |
| Allocation percentage | 25% | 75% |
| Allocation amount ($314,896) | $78,724 | $236,172 |
| Particulars | Mental health | Housing |
| Education | $84,052 | $84,052 |
| Program Management | $78,724 | $236,172 |
| Total Amount Allocated | $162,776 | $320,224 |
Table (4)
b.1) Split-off method if info systems are split first:
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | Education | Program Management |
| First phase allocation | $6,000 | $122,000 | $100,000 | $190,000 |
| Information Technology | $6,250 | $18,750 | $12,500 | $12,500 |
| Administration | $2,500 | $3,750 | $3,750 | $5,000 |
| Total Amount Allocated | $14,750 | $144,500 | $116,250 | $207,500 |
Table (5)
Compute the costs allocated:
| Particulars | Administration | Education | Program Management |
| Service percentage | 20% | 20% | 60% |
| Allocation amount ($14,750) | $2,950 | $2,950 | $8,850 |
| Administration | |||
| Particulars | Education | Program Management | |
| Service percentage | 30% | 60% | |
| Allocation percentage | 33.3333% | 66.6667% | |
| Allocation amount ($147,450) | $49,150 | $98,300 | |
| Particulars | Education | Program Management | |
| Computer | $2,950 | $8,850 | |
| CFL Group | $49,150 | $98,300 | |
| Total Amount Allocated | $52,100 | $107,150 | |
| Particulars | Education | Program Management | |
| First phase allocation | $116,250 | $207,500 | |
| Information Technology | $2,950 | $8,850 | |
| Administration | $49,150 | $98,300 | |
| Total Amount Allocated | $168,350 | $314,650 | |
Table (6)
Compute the total costs allocated:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Service percentage | 50% | 50% |
| Allocation percentage | 50% | 50% |
| Allocation amount ($168,350) | $84,175 | $84,175 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Service percentage | 25% | 75% |
| Allocation percentage | 25% | 75% |
| Allocation amount ($314,650) | $78,663 | $235,988 |
| Particulars | Mental health | Housing |
| Education | $84,175 | $84,175 |
| Program Management | $78,663 | $235,988 |
| Total Amount Allocated | $162,838 | $320,163 |
Table (7)
c) Reciprocal method
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | Education | Program Management |
| First phase allocation | $6,000 | $122,000 | $100,000 | $190,000 |
| Information Technology | $6,250 | $18,750 | $12,500 | $12,500 |
| Administration | $2,500 | $3,750 | $3,750 | $5,000 |
| Total Amount Allocated | $14,750 | $144,500 | $116,250 | $207,500 |
Table (8)
Compute the costs allocated:
| Information Technology | ||
| Particulars | Education | Program Management |
| Allocation percentage | 20% | 60% |
| Allocation amount ($29,795.92) | $5,959 | $17,878 |
| Administration | ||
| Particulars | Education | Program Management |
| Allocation percentage | 30% | 60% |
| Allocation amount ($150,459.18) | $45,138 | $90,276 |
| Particulars | Education | Program Management |
| Information Technology | $5,959 | $17,878 |
| Administration | $45,138 | $90,276 |
| Total Amount Allocated | $51,097 | $108,153 |
| Particulars | Education | Program Management |
| First phase allocation | $116,250 | $207,500 |
| Information Technology | $5,959 | $17,878 |
| Administration | $45,138 | $90,276 |
| Total Amount Allocated | $167,347 | $315,653 |
Table (9)
Compute the total costs allocated:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Allocation percentage | 50% | 50% |
| Allocation amount ($167,347) | $83,674 | $83,674 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Allocation percentage | 25% | 75% |
| Allocation amount ($315,653) | $78,913 | $236,740 |
| Particulars | Mental health | Housing |
| Education | $83,674 | $83,674 |
| Program Management | $78,913 | $236,740 |
| Total Amount Allocated | $162,587 | $320,413 |
Table (10)
Compute the base for allocation:
| Reciprocal Cost allocation Using Solver | |||||
| Particulars | Allocated costs | Service rates to | Allocation to | ||
| CFL Group | Computer | CFL Group | Computer | ||
| Information Technology | $29,795.92 | 1.00 | (0.20) | $29,796 | ($5,959) |
| Administration | $150,459.18 | (0.10) | 1.00 | ($15,046) | $150,459 |
| Total | $14,750 | $144,500 | |||
Table (11)
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
What is the amount of inventory lost the fire?
Please provide the answer to this general accounting question using the right approach.
How much total cost would be allocated to the Assembly activity cost pool?
Chapter 7 Solutions
Cost Management
Ch. 7 - Prob. 1QCh. 7 - Explain the difference between joint products and...Ch. 7 - Prob. 3QCh. 7 - What are the three methods of departmental cost...Ch. 7 - Prob. 5QCh. 7 - Prob. 6QCh. 7 - Prob. 7QCh. 7 - What are the limitations of joint product and...Ch. 7 - Prob. 9QCh. 7 - Prob. 10Q
Ch. 7 -
What is the amount of service department cost...Ch. 7 - Prob. 12BECh. 7 - Prob. 13BECh. 7 - Prob. 14BECh. 7 - Prob. 15BECh. 7 - Prob. 16BECh. 7 - Prob. 17BECh. 7 - Prob. 18BECh. 7 - Prob. 19BECh. 7 - Brief Exercises 7-17 through 7-20 require the...Ch. 7 - Prob. 21ECh. 7 - Prob. 22ECh. 7 - Prob. 23ECh. 7 - Prob. 24ECh. 7 - Great Ape Glassworks manufactures glass used for...Ch. 7 - Cost allocation is often the centerpiece of...Ch. 7 - Prob. 27ECh. 7 - Prob. 28ECh. 7 - Robinson Products Company has two service...Ch. 7 - Donation of blood through the American Red Cross...Ch. 7 - Tango Company produces joint products M, N, and T...Ch. 7 - Arkansas Corporation manufactures liquid chemicals...Ch. 7 - Webster Company produces 25,000 units of product...Ch. 7 - Marin Company produces two software products...Ch. 7 - Logan Products has two production...Ch. 7 - McKeoun Enterprises is a large machine tool...Ch. 7 - Barfield Corporation prepares business plans and...Ch. 7 - Solexx Corporation allocates its service...Ch. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Prob. 43PCh. 7 - Prob. 44PCh. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - Prob. 47PCh. 7 - Prob. 48PCh. 7 - Prob. 49PCh. 7 - Prob. 50P
Knowledge Booster
Similar questions
- Do fast solve this questionarrow_forwardSuppose a stock had an initial price of $66 per share, paid a dividend of $1.8 per share during the year, and had an ending share price of $80. Compute the percentage of total return. a. 23.94% b. 19.75% c. 29.70% d. 25.14%arrow_forwardAccounting answer with solutionarrow_forward
- Accounting answer with correct solutionarrow_forwardValley Tech Inc. reported the following balances at the end of the year: Credit Sales: $250,000 Accounts Receivable: $45,000 Allowance for Uncollectible Accounts before adjustment: $2,000 debit Valley Tech estimates that 5% of the credit sales will be uncollectible. What is the net realizable value of accounts receivable after the year-end adjustment?arrow_forwardXYZ Co. has an average collection period of 45 days. Total credit sales for the year were $3,200,000. What is the balance in accounts receivable at year-end? (Use 360 days in a year. Round to the nearest dollar.)arrow_forward
- Please explain the solution to this general accounting problem using the correct accounting principles.arrow_forwardProperty, Plant & Equipment (Non-current Assets) 1.Define PPE and explain its treatment under IAS 16.2.Compare the cost model vs. revaluation model, including pros, cons, and theoretical implications (e.g., relevance vs. reliability).3.Calculate depreciation using both straight-line and reducing balance methods for an asset costing $500,000 with an expected life of 10 years and residual value of $50,000.4.Explain how impairment and disposals affect PPE reporting and financial results.arrow_forwardSub - General Accountarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education