Q1. Allocate the support department cost to operating department using Direct Me
ID: 2464035 • Letter: Q
Question
Q1. Allocate the support department cost to operating department using Direct Method. The information for the recent period is as follows:
Support Department
Operating Department
Medical
Possible Allocation Bases:
Support Department
Operating Department
Medical
No. of Employees
Square Feet
Administration Cost will be allocated using number of employees and Housekeeping cost will be allocated using square feet.
Q2. Explain the three methods to allocate support department costs to operating departments.
Q3. Describe the split-off point and explain its significance for joint product costing. Methods to allocate joint costs often require use of estimates. Which of the following two methods is likely to involve the most uncertainty? Explain.
a. Physical output method
b. Net realizable value
Q4. Distinguish between support department costs and manufacturing overhead costs.
Q5. Why would managers want to develop and monitor standards for expected contribution margins?
Support Department
Operating Department
Administration HousekeepingMedical
Dental Total Cost 32400 48600 127,000 106,000 314,000Explanation / Answer
2- Methods to allocate support department costs to operating departments-
1- Direct Allocation Method-
Under this method all cost of service department is reallocated to production departments in the ratio of their specified percentages. This method is completely different from other method because it disregards any services provided by one service department to another. This means that no portion of the overhead of a service department is reallocated to other service departments.
Direct method is generally an inaccurate method of service departments overheads reallocations and very inaccurate when service departments receive significant help from each other. Therefore it is only recommended in cases where service departments do not depend much on the services of other departments.
2- Simultaneous Equation Method- In simultaneous equation method of allocation of service department costs, we establish simultaneous equations and solve them to obtain the final balances of production departments. This method accurately allocates service department costs in the given percentages.
3- Repeated Distribution Method- Repeated distribution method is a technique in which costs of each service department are repeatedly allocated to other departments according to the given percentages until the balance left in service departments reaches zero.
3- SPLIT- OFF POINT- Joint costing or by-product costing are used when a business has a production process from which final products are split off during a later stage of production. The point at which the business can determine the final product is called the split-off point. There may even be several split-off points.
If the company has incurred any manufacturing costs prior to the split-off point, it must designate a method for allocating these costs to the final products. If the entity incurs any costs after the split-off point, the costs are likely associated with a specific product, and so can be more readily assigned to them.
a.Physical Output Method- The physical measure method allocates cost by the weight, volume, or some other measurement of the product that’s produced. It’s a contrast to relative sales value.
b.Net realizable value- The net realizable value method allocates joint costs on the basis of the final sales value less separable costs. Final sales value is simply the price tag. the price paid by the customer. That price is paid after all production costs, whether they are joint costs or separable costs incurred after splitoff.
Department Sum of Employee/Sq.feet Medical Dental Administration 5+3 =8 5/8 3/8 Housekeeping 8000+1000=9000 8/9 1/9Related Questions
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