Analyze Milkrageous, Inc. Milkrageous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative. The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial ($150,700) and Maintenance ($300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is $755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese. a. Identify the method of support department cost allocation that matches the given situation. a. Direct method. b. Reciprocal services method. c. Sequence method. d. None of the above. b. Identify the cost driver that is suitable for allocating the janitorial costs. a. square feet. b. number of calls. c. number of employees. d. none of the above. c. Identify the cost driver that is suitable for allocating the maintenance costs. a. square feet. b. number of calls. c. number of employees. d. none of the above.
Analyze Milkrageous, Inc.
Milkrageous, Inc., a large, private dairy products company, is determining cost allocations for performance evaluation purposes. Company bonuses are based on cost containment, so accurate costing numbers are imperative.
The general managers (GMs) over the cheese and yogurt divisions are being evaluated. Support department costs include Janitorial ($150,700) and Maintenance ($300,200). The Janitorial costs remain relatively fixed from quarter to quarter. Maintenance costs, however, vary with respect to the number of service calls made each quarter. The joint cost of processing milk before the split-off point for yogurt and cheese is $755,000 for the quarter. Yogurt sells at higher margins than cheese (at split-off as well as after further processing), but is equally difficult to produce as cheese.
a. Identify the method of support department cost allocation that matches the given situation.
a. Direct method.
b. Reciprocal services method.
c. Sequence method.
d. None of the above.
b. Identify the cost driver that is suitable for allocating the janitorial costs.
a. square feet.
b. number of calls.
c. number of employees.
d. none of the above.
c. Identify the cost driver that is suitable for allocating the maintenance costs.
a. square feet.
b. number of calls.
c. number of employees.
d. none of the above.
d. Why should the janitorial costs be omitted from the evaluation of general manager performance?
a. It is related to the square feet used in the plants and not related to the performance of the general manager.
b. It is a fixed cost and cannot be related to the performance of the general manager.
c. It is an unavoidable cost and not related to the performance of the company or general manager.
d. All the above.
e. Identify the joint cost allocation method that should be used for performance evaluation purposes.
a. Sales value method.
b. Net realizable value method.
c. Physical units method.
d. Weighted average method.
f. Regardless of the correct answer to part (e), use the physical units method to allocate joint costs to yogurt and cheese assuming 198,000 pounds of yogurt and 102,000 pounds of cheese were produced during the quarter
| Joint Product |
Pounds per Quarter |
Proportion | Joint Costs |
Allocation |
| Yogurt | % | $ | $ | |
| Cheese | % | |||
| Totals | $ |
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