Pat's Print Shops has a warehouse that supplies paper and other supplies to its store locations.

It has two service departments, Information Services (S1) and Operation Support (S2), and two operating departments, Printing (P1) and Customer Service (P2). As an internal auditor, you are checking the company's procedures for cost allocation. You find the following cost allocation results for September:

Costs allocated to P1 Costs allocated to P2

$32,000 from S1 ? from S2 ? from S1 $18,000 from S2

Total costs for the two service departments are $80,000. Operation Support's services are provided as follows: 50 percent to Printing. 30 percent to Customer Service. The direct method of allocating costs is used. Required: (a) What are the total service department costs (S1 + S2) allocated to P2? (Do not round intermediate calculations. Omit the "$" sign in your response.)

Total allocated to P2

18,000

(b) Complete the following (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response) : To From Information services Operation support Printing 32,000
30,000

$ $

Customer Service 0 $ $ 18,000

(c) What proportion of S1's costs were allocated to P1 and P2? (Leave no cells blank, be certain to enter "0" wherever required. Omit the "%" sign in your response.) P1 Allocation of S1's costs
100

P2 %
0

Explanation: (a)

Since the direct method is used, Operations Support's (S2's) costs are allocated only to P1 and P2, not to S1. To find the cost of S2's services: .3 .5 + .3 .375 $18,000 .375

$18,000 from S2 to = P2 $18,000 =

(S2) (S2) = $48,000

S2 =

To find the cost of S1's services: S1 = Total S2 S1 = $80,000 $48,000 S1 = $32,000 Since $32,000 from S1 is allocated to P1, nothing is allocated from S1 to P2. Total allocated to P2 = $18,000 (= $18,000 + 0).
(b)

Amount allocated from S2 to P1 = $30,000 = (

(c)

.5 .5 + .3

$48,000)

All of S1's costs were allocated to P1 and none were allocated to P2.

2012
award:

2.23 out of 10.00 points

Manzano Bank has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During November, the following costs and service department usage ratios were recorded: Using Department Supplying Department Processing Administration Maintenance Direct cost Processing 0 0 10% $120,000 Administration Maintenance Branches Electronic 50% 0 10% 40% 0 0 60% 40% 20% 0 20% 50% 330,000 $750,000 $ $6,000,000 $2,250,000

Required: (a) Allocate the service department costs to the two operating departments using the reciprocal method.(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Costs $ 12,000 50,000 50,000 Processing $0 0 0 Allocated to: Administration Branches $0 $0 0 0 0 0 0 Electronic $0 0 0 0

Maintenance Processing Administration Total

(b) Will there be any change in the allocation of the service department costs to the two operating departments if the step method is used instead of reciprocal method? No
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Worksheet

Learning Objective: 11-03 Allocate service department costs step method. Learning Objective: 11-04 Allocate service department costs reciprocal method.

Difficulty: Medium

Western Woods, Inc., processes logs into grade A and grade B lumber. Logs cost $12,000 per load. The milling process produces 4,000 units of grade A with a market value of $28,000, and 12,000 units of grade B with a market value of $4,000. The cost of the milling process is $5,120 per load. Requirement 1: If the costs of the logs and the milling process are allocated on the basis of units of output, what cost will be assigned to each product? (Do not round intermediate calculations. Omit the "$" sign in your response.) Cost Allocation Grade A: Grade B: $ $
4,280 12,840

Requirement 2: If the costs of the logs and the milling process are allocated on the basis of the net realizable value, what cost will be assigned to each product? (Do not round intermediate calculations. Omit the "$" sign in your response.) Cost Allocation Grade A: Grade B: $ $
14,980 2,140

Requirement 3: (a) How much profit or loss does the grade B lumber provide using the data in this problem and your analysis in requirement (1)? (Input all amount as positive values. Omit the "$" sign in your response.) Loss $
8,840

(b) Is it possible to determine which product is more profitable? No

Explanation:

1:
Total cost = $12,000 + $5,120 = $17,120 Allocation on the basis of units of output Grade A: 4,000 4,000 + 12,000 Grade B: 12,000 4,000 + 12,000

$17,120 =

4,280

$17,120 = $

12,840

17,120

2:
Total cost = $12,000 + $5,120 = $17,120 Allocation on the basis of units of output Grade A: $28,000 $17,120 = $28,000 + $4,000 Grade B: $4,000 $17,120 = $14,980

Allocated to: Costs Maintenance Processing Administration $

330,000 153,000 892,500

Processing $
33,000 0 0

Administration $
66,000 76,500 0

Branches $
66,000 15,300 535,500

Electronic $
165,000 61,200 357,000

Total

616,800

583,200

(b) Will there be any change in the allocation of the service department costs to the two operating departments if the step method is used instead of reciprocal method? No

Explanation:

(a)
The key to this problem is to recognize that Administration provides no service to either of the other two service departments and that Processing only provides services to Administration and not to Maintenance. Therefore, there are no reciprocal services between Administration and the other service departments or between Processing and Administration.

The cost equations can be written as follows: Maintenance = $330,000 (Given); Processing = $120,000 + 10% Maintenance; Administration = $750,000 + 20% Maintenance + 50% Processing.
Allocating costs in the order specified: Allocated to: Processin Adminstra Costs g tion Maintena 330, 33,0 (10 66,0 (20 $ $ $ nce 000 00%) 00%) Processi 153, 76,5 (50 ng 000 00%) Administr 892, $ ation 500 Total Branches $ 66,000 (20%) 15,300 (10%) 535,500 (60%) $ 616,800 $ $ Electronic 165,000 (50%) 61,200 (40%) 357,000 (40%) 583,200