Q1. Allocate the support department cost to operating department using Direct Me

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 Administration Housekeeping Medical Dental Total Cost 32400 48600 127,000 106,000 314,000 Possible Allocation Bases: Support Department Operating Department Administration Housekeeping Medical Dental Total No. of Employees 2 2 5 3 12 Square Feet 900 100 8000 1000 10,000 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?

Explanation / Answer

Support Department Operating Department Administration Housekeeping Medical Dental Total Cost Cost 32400 48600 127,000 106,000 314,000 Employees 2 2 5 3 12 Square Feet 900 100 8000 1000 10000 First we have to calculate the factors to apportion service department overheads: Department Sum of allocation to operating department Administration 5+3 = 8 5/8. 3/8. Housekeeping 8000+1000 = 9000 8000/9000. 1000/9000. We then multiply the support department overhead by the above factors to obtain the amount of overhead to be allocated to each operating department. Department Administration Housekeeping Medical Dental Allocated Overheads 32400 48600 127,000 106,000 Administration reallocation -32400 20250 12150 Housekeeping reallocation -48600 43200 5400 Total 0 0 190,450 123,550

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