Support activity cost allocation Jake’s Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities are supported by the Maintenance and Security activities. Security costs are allocated to the production activities based on asset value. Maintenance costs are normally allocated based on machine hours. However, Maintenance costs typically correlate more with the number of service calls. Information regarding the activities is provided in the following table: Maintenance Security Mining Cutting Number of service calls 17 20 60 20 Machine hours 89 88 182 176 Asset value $200,000 $80,000 $300,000 $300,000 Department cost $25,000 $42,500 $160,000 $95,000 1. Is the process of allocating maintenance costs based on machine hours correct? Identify the measure than can possibly be used to allocate the maintenance costs. No Measures that can possibly be used to allocate the maintenance costs. a. Number of service calls b. Asset value c. Department cost d. None of the above a 2. Based on your response to part (1), determine the total costs allocated from each support activity to the other activities using the reciprocal services method and the most appropriate cost driver for Maintenance. Maintenance Department Security Department Mining Department Cutting Department Maintenance cost allocation $ $ $ Security cost allocation $ $ $ Production activities total costs $ $ 3. Assume Jake’s Gems is considering cutting costs by switching to a simpler support activity cost allocation method. Determine the total costs allocated from each support activity to the other activities. Particulars Mining Department Cutting Department Maintenance cost $ $ Security cost $ $ Production activities total cost $ $

Support activity cost allocation Jake’s Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities are supported by the Maintenance and Security activities. Security costs are allocated to the production activities based on asset value. Maintenance costs are normally allocated based on machine hours. However, Maintenance costs typically correlate more with the number of service calls. Information regarding the activities is provided in the following table: Maintenance Security Mining Cutting Number of service calls 17 20 60 20 Machine hours 89 88 182 176 Asset value $200,000 $80,000 $300,000 $300,000 Department cost $25,000 $42,500 $160,000 $95,000 1. Is the process of allocating maintenance costs based on machine hours correct? Identify the measure than can possibly be used to allocate the maintenance costs. No Measures that can possibly be used to allocate the maintenance costs. a. Number of service calls b. Asset value c. Department cost d. None of the above a 2. Based on your response to part (1), determine the total costs allocated from each support activity to the other activities using the reciprocal services method and the most appropriate cost driver for Maintenance. Maintenance Department Security Department Mining Department Cutting Department Maintenance cost allocation $ $ $ Security cost allocation $ $ $ Production activities total costs $ $ 3. Assume Jake’s Gems is considering cutting costs by switching to a simpler support activity cost allocation method. Determine the total costs allocated from each support activity to the other activities. Particulars Mining Department Cutting Department Maintenance cost $ $ Security cost $ $ Production activities total cost $ $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter5: Support Department And Joint Cost Allocation

Section: Chapter Questions

Problem 2PA: Support activity cost allocation Jakes Gems mines and produces diamonds, rubies, and other gems. The...

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Support activity cost allocation

Jake’s Gems mines and produces diamonds, rubies, and other gems. The gems are produced by way of the Mining and Cutting activities. These production activities are supported by the Maintenance and Security activities. Security costs are allocated to the production activities based on asset value. Maintenance costs are normally allocated based on machine hours. However, Maintenance costs typically correlate more with the number of service calls. Information regarding the activities is provided in the following table:

	Maintenance	Security	Mining	Cutting
Number of service calls	17	20	60	20
Machine hours	89	88	182	176
Asset value	$200,000	$80,000	$300,000	$300,000
Department cost	$25,000	$42,500	$160,000	$95,000

1. Is the process of allocating maintenance costs based on machine hours correct? Identify the measure than can possibly be used to allocate the maintenance costs.

Measures that can possibly be used to allocate the maintenance costs.

a. Number of service calls

b. Asset value

c. Department cost

d. None of the above

2. Based on your response to part (1), determine the total costs allocated from each support activity to the other activities using the reciprocal services method and the most appropriate cost driver for Maintenance.

	Maintenance Department	Security Department	Mining Department	Cutting Department
Maintenance cost allocation		$	$	$
Security cost allocation	$		$	$
Production activities total costs			$	$

3. Assume Jake’s Gems is considering cutting costs by switching to a simpler support activity cost allocation method. Determine the total costs allocated from each support activity to the other activities.

Particulars	Mining Department	Cutting Department
Maintenance cost	$	$
Security cost	$	$
Production activities total cost	$	$

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