COST MANAGEMENT: CONNECT ACCESS CUSTOM
COST MANAGEMENT: CONNECT ACCESS CUSTOM
8th Edition
ISBN: 9781264045754
Author: BLOCHER
Publisher: MCG CUSTOM
Question
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Chapter 7, Problem 40P
To determine

Ascertain the cost allocated using each method of allocation.

Expert Solution & Answer
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Explanation of Solution

a) Direct method:

Compute the base for allocation:

Departmental Cost Allocation Bases
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Direct labor percent12.5000%37.5000%25.0000%25.0000%
Headcount2334
Headcount percent16.6667%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
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Allocation percentage12.5000%37.5000%25.0000%25.0000%
Allocation amount ($50,000)$6,250$18,750$12,500$12,500
Indirect supplies costs
ParticularsInformation TechnologyAdministrationEducationProgram Management
Headcount2334
Allocation percentage16.6667%25.0000%25.0000%33.3333%
Allocation amount ($15,000)$2,500$3,750$3,750$5,000
ParticularsInformation TechnologyAdministration
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
ParticularsEducationProgram Management
Service percentage20%60%
Allocation percentage25.00%75.00%
Allocation amount ($14,750)$3,688$11,063
Administration
ParticularsEducationProgram Management
Service percentage30%60%
Allocation percentage33.3333%66.6667%
Allocation amount ($144,500)$48,167$96,333
   
ParticularsEducationProgram Management
Information Technology$3,688$11,063
Administration$48,167$96,333
Total Amount Allocated$51,854$107,396
ParticularsEducationProgram 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
ParticularsMental healthHousing
Direct labor hour               2,000                2,000
Direct labor percent50%50%
Headcount13
Headcount percent25%75%
Education
ParticularsMental healthHousing
Service percentage50%50%
Allocation percentage50%50%
Allocation amount ($168,104)$84,052$84,052
Program Management
ParticularsMental healthHousing
Service percentage25%75%
Allocation percentage25%75%
Allocation amount ($314,896)$78,724$236,172
ParticularsMental healthHousing
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
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Direct labor percent12.5000%37.5000%25.0000%25.0000%
Headcount2334
Headcount percent16.6667%25.0000%25.0000%33.3333%
Direct costs$6,000$122,000$100,000$190,000
Indirect labor costs
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Allocation percentage12.5000%37.5000%25.0000%25.0000%
Allocation amount ($50,000)$6,250$18,750$12,500$12,500
Indirect supplies costs
ParticularsInformation TechnologyAdministrationEducationProgram Management
Headcount2334
Allocation percentage16.6667%25.0000%25.0000%33.3333%
Allocation amount ($15,000)$2,500$3,750$3,750$5,000
ParticularsInformation TechnologyAdministrationEducationProgram 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:

ParticularsAdministrationEducationProgram Management
Service percentage20%20%60%
Allocation amount ($14,750)$2,950$2,950$8,850
Administration
ParticularsEducationProgram Management
Service percentage30%60%
Allocation percentage33.3333%66.6667%
Allocation amount ($147,450)$49,150$98,300
ParticularsEducationProgram Management
Computer$2,950$8,850
CFL Group$49,150$98,300
Total Amount Allocated$52,100$107,150
ParticularsEducationProgram 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
ParticularsMental healthHousing
Direct labor hour               2,000                2,000
Direct labor percent50%50%
Headcount13
Headcount percent25%75%
Education
ParticularsMental healthHousing
Service percentage50%50%
Allocation percentage50%50%
Allocation amount ($168,350)$84,175$84,175
Program Management
ParticularsMental healthHousing
Service percentage25%75%
Allocation percentage25%75%
Allocation amount ($314,650)$78,663$235,988
ParticularsMental healthHousing
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
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Direct labor percent12.5000%37.5000%25.0000%25.0000%
Headcount2334
Headcount percent16.6667%25.0000%25.0000%33.3333%
Direct costs$6,000$122,000$100,000$190,000
Indirect labor costs
ParticularsInformation TechnologyAdministrationEducationProgram Management
Direct labor hour2000600040004000
Allocation percentage12.5000%37.5000%25.0000%25.0000%
Allocation amount ($50,000)$6,250$18,750$12,500$12,500
Indirect supplies costs
ParticularsInformation TechnologyAdministrationEducationProgram Management
Headcount2334
Allocation percentage16.6667%25.0000%25.0000%33.3333%
Allocation amount ($15,000)$2,500$3,750$3,750$5,000
ParticularsInformation TechnologyAdministrationEducationProgram 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
ParticularsEducationProgram Management
Allocation percentage20%60%
Allocation amount ($29,795.92)$5,959$17,878
Administration
ParticularsEducationProgram Management
Allocation percentage30%60%
Allocation amount ($150,459.18)$45,138$90,276
ParticularsEducationProgram Management
Information Technology$5,959$17,878
Administration$45,138$90,276
Total Amount Allocated$51,097$108,153
ParticularsEducationProgram 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
ParticularsMental healthHousing
Direct labor hour               2,000                2,000
Direct labor percent50%50%
Headcount13
Headcount percent25%75%
Education
ParticularsMental healthHousing
Allocation percentage50%50%
Allocation amount ($167,347)$83,674$83,674
Program Management
ParticularsMental healthHousing
Allocation percentage25%75%
Allocation amount ($315,653)$78,913$236,740
ParticularsMental healthHousing
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
ParticularsAllocated costsService rates toAllocation to
CFL GroupComputerCFL GroupComputer
Information Technology$29,795.921.00(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)

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Chapter 7, Problem 39P
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Chapter 7 Solutions

COST MANAGEMENT: CONNECT ACCESS CUSTOM

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
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