TEST BANK managerial accounting 13e by garrison chapter 04

Chapter Systems Design: Process Costing True/False Questions In a process costing system, the costs of one processing department become part of the costs of the next processing department Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy The equivalent units of production will be the same under the weighted-average and the FIFO method if there is no beginning work in process inventory Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 2,5 Level: Medium Under the weighted-average method, the equivalent units used to compute the unit costs of ending inventories relate only to work done during the current period Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Hard In order to equitably allocate costs in a process costing system, dissimilar products are restated in terms of equivalent units by weighting the number of units produced by their market values Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy In a process costing system, units transferred to the next processing department are presumed to be 100% complete with respect to the work performed by the transferring department Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Under a weighted-average process costing system when all materials are added at the beginning of the production process, the equivalent units for materials is equal to the units completed and transferred out Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Hard Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-7 Chapter Systems Design: Process Costing In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy The equivalent units of production for a department using the FIFO process costing method is equal to the number of units completed plus the equivalent units in the ending inventory Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: Level: Hard The step-down method of cost allocation is more accurate than the direct method since the step-down method considers services that service departments provide to each other Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Easy 10 The step-down method and the direct method of cost allocation will result in the same amount of service department cost being allocated to a given operating department, although the step-down method is easier to apply than the direct method Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Medium 11 The order in which the costs of service departments are allocated will affect the amounts allocated to an operating department when the direct method is used Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: Level: Medium 12 The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy 4-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 13 In a process costing system, direct labor cost combined with manufacturing overhead cost is known as conversion cost Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy 14 Process costing is employed in industries that produce basically homogeneous products such as bricks, flour, or cement but would not be appropriate for assemblytype operations such as those that manufacture computers Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium 15 Process costing is used where many different products are produced each period to customer specifications Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy Multiple Choice Questions 16 Which of the following statements related to job-order costing and process costing are true? A) Under both costing methods, manufacturing overhead costs are included in the computation of unit product costs B) Under both costing methods, the journal entry to record the completion of production will involve crediting a work in process account C) Under both costing methods, the journal entry to record the cost of goods sold will involve crediting the finished goods account D) All of the above are true Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-9 Chapter Systems Design: Process Costing 17 The completion of goods is recorded as a decrease in the work in process inventory account when using: A) B) C) D) Job-order costing Process costing Yes No Yes Yes No Yes No No Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Source: CPA, adapted 18 In process costing, a separate work in process account is kept for each: A) individual order B) equivalent unit C) processing department D) cost category (i.e., materials, conversion cost) Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 19 The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: A) does not consider the degree of completion of beginning work in process inventory when computing equivalent units of production B) considers ending work in process inventory to be fully complete C) will always yield a higher cost per equivalent unit D) All of the above Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 2,3,5,6 Level: Hard 4-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 20 Which of the following are needed to compute equivalent units for conversion costs under the weighted-average method of process costing? A) B) C) D) Percentage completion of beginning work in process Yes No Yes No Percentage completion of ending work in process Yes Yes No No Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 21 Malcolm Company uses a weighted-average process costing system All materials at Malcolm are added at the beginning of the production process The equivalent units for materials at Malcolm would be the sum of: A) units in ending work in process and the units started B) units in beginning work in process and the units started C) units in ending work in process and the units started and completed D) units in beginning work in process and the units started and completed Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard 22 In the computation of costs per equivalent unit, the weighted-average method of process costing considers: A) costs incurred during the current period only B) costs incurred during the current period plus cost of ending work in process inventory C) costs incurred during the current period plus cost of beginning work in process inventory D) costs incurred during the current period less cost of beginning work in process inventory Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Source: CPA, adapted Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-11 Chapter Systems Design: Process Costing 23 Which of the following are needed to compute the cost per equivalent unit for materials under the weighted-average method of process costing? A) B) C) D) Material cost assigned to beginning work in process last period Yes No Yes No Material cost added to production during the current period Yes Yes No No Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 24 Under which of the following conditions will the FIFO method of process costing result in the same amount of cost being transferred to the next department as the weighted-average method? A) When the beginning and ending inventories are each fifty percent complete B) When there is no beginning inventory C) When there is no ending inventory D) When units in the beginning inventory are all completed and transferred at the same time Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 4,7 Level: Hard Source: CMA, adapted 25 In order to compute equivalent units of production using the FIF0 method of process costing, work for the period must be broken down into parts: A) completed during the period and units in ending inventory B) completed from beginning inventory, started and completed during the month, and units in ending inventory C) started during the period and units transferred out during the period D) processed during the period and units completed during the period Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: Level: Medium Source: CPA, adapted 4-12 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 26 Which of the following methods of allocating service departments take into account all of the effects of interdepartmental services? A) B) C) D) Direct Step-Down Yes Yes Yes No No Yes No No Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Medium 27 All of the following statements are correct when referring to process costing except: A) Process costing would be appropriate for a jeweler who makes custom jewelry to order B) A process costing system has the same basic purposes as a job-order costing system C) Units produced are indistinguishable from each other D) Costs are accumulated by department Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium 28 For which of the following would it be best to use an operation costing system? A) home remodeling B) automobile production C) cement used for roadways D) trash bags used for yard waste Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-13 Chapter Systems Design: Process Costing 29 Health Beverage Company uses a process costing system to collect costs related to the production of its celery flavored cola The cola is first processed in a Mixing Department at Health and is then transferred out and finished up in the Bottling Department The finished cases of cola are then transferred to Finished Goods Inventory The following information relates to Health's two departments for the month of January: Mixing Bottling Cases of cola in work in process, January 10,000 3,000 Cases of cola completed/transferred out during January 77,000 ? Cases of cola in work in process, January 31 4,000 8,000 How many cases of cola were completed and transferred to Finished Goods Inventory during January? A) 66,000 B) 71,000 C) 72,000 D) 74,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Solution: To solve for units transferred: + Work in process, beginning + Units started into production during the month − Work in process, ending = Units completed and transferred out during the month 4-14 3,000 77,000 8,000 72,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 30 The Assembly Department started the month with 83,000 units in its beginning work in process inventory An additional 334,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department There were 34,000 units in the ending work in process inventory of the Assembly Department How many units were transferred to the next processing department during the month? A) 417,000 B) 285,000 C) 451,000 D) 383,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Solution: To solve for units transferred: + Work in process, beginning 83,000 + Units started into production during the month 334,000 − Work in process, ending 34,000 =Units completed and transferred out during the month 383,000 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-15 Chapter Systems Design: Process Costing 31 Colby Company has a process costing system in which the weighted-average method is used The company adds all materials at the beginning of the process in the Molding Department, which is the first of two stages of its production process Information concerning the materials used in the Molding Department during March is as follows: Materials Units Costs Work in process at March 22,000 $11,000 Units started during March 90,000 $46,120 Units completed and transferred to next department during March 97,000 What was the materials cost of the work in process inventory at March 31? A) $11,220 B) $7,500 C) $5,100 D) $7,650 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Source: CPA, adapted 4-16 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 226 Rauzman Corporation uses the FIFO method in its processing costing The following data concern the company's Mixing Department for the month of August Materials Conversion Work in process, August $25,641 $15,300 Cost added to production in the Mixing Department during August $170,940 $179,775 Equivalent units of production for August 7,770 7,650 Required: Compute the cost per equivalent unit for materials and conversion for the Mixing Department for August using the FIFO method Ans: FIFO method: Materials Conversion Cost added during the month $170,940 $179,775 Equivalent units 7,770 7,650 Cost per equivalent unit $22.00 $23.50 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4A LO: Level: Easy 4-240 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 227 Crone Corporation uses the FIFO method in its processing costing system The following data concern the company's Assembly Department for the month of October Cost in beginning work in process inventory $1,920 Units started and completed this month 3,130 Cost per equivalent unit Equivalent units required to complete the units in beginning work in process inventory Equivalent units in ending work in process inventory Materials Conversion $9.50 $20.40 360 140 330 264 Required: Determine the cost of ending work in process inventory and the cost of units transferred out of the department during October using the FIFO method Ans: FIFO method: Transferred to the next department: From the beginning work in process inventory: Cost in beginning work in process inventory $ 1,920 Cost to complete these units: Materials, 360 EUs at $9.50 per EU 3,420 Conversion, 140EUs at $20.40 per EU 2,856 Total cost from beginning inventory 8,196 Units started and completed this month, 3,130 units at $29.90 per unit 93,587 Total cost transferred to the next department $101,783 Work in process, October 31: Materials, 330 EUs at $9.50 per EU Conversion, 264 EUs at $20.40 per EU Total work in process, October 31 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4A LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $3,135 5,386 $8,521 AICPA FN: Reporting 4-241 Chapter Systems Design: Process Costing 228 The following data has been provided by Glasco Inc., a company that uses the FIFO method in its processing costing system The data concern the company's Shaping Department for the month of June Cost in beginning work in process inventory $1,690 Units started and completed this month 4,110 Cost per equivalent unit Equivalent units required to complete the units in beginning work in process inventory Equivalent units in ending work in process inventory Materials Conversion $12.50 $45.70 460 260 220 176 Required: Determine the cost of ending work in process inventory and the cost of the units transferred out of the department during June using the FIFO method Ans: FIFO method: Transferred to the next department: From the beginning work in process inventory: Cost in beginning work in process inventory Cost to complete these units: Materials, at 460 EUs $12.50 per EU Conversion, at 260 EUs $45.70 per EU Total cost from beginning inventory Units started and completed this month, 4,110 units at $58.20 per unit Total cost transferred to the next department Work in process, June 30: Materials, 220 EUs at $12.50 per EU Conversion, 176 EUs at $45.70 per EU Total work in process, June 30 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4A LO: Level: Medium 4-242 $ 1,690 5,750 11,882 19,322 239,202 $258,524 $ 2,750 8,043 $10,793 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 229 Central Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery Central allocates the cost of Building Services on the basis of square feet and Energy on the basis of patient days No distinction is made between variable and fixed costs Budgeted operating data for the year just completed follow: Service Departments Building Services Energy Budgeted costs before allocation Square feet Patient days $20,000 $10,000 1,000 4,000 0 Operating Departments Pediatrics Geriatrics $90,000 6,000 5,500 Surgery $60,000 $100,000 18,000 12,000 7,700 8,800 Required: a Prepare a schedule to allocate service department costs to operating departments by the direct method (round all dollar amounts to the nearest whole dollar) b Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first (round all amounts to the nearest whole dollar) Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-243 Chapter Systems Design: Process Costing Ans: a Direct Method: Budgeted costs before allocation Allocation of Building Services: Pediatrics: 6,000/36,000 × $20,000 Geriatrics:18,000 /36,000 × $20,000 Surgery: 12,000/36,000 × $20,000 Allocation of Energy: Pediatrics: 5,500/22,000 × $10,000 Geriatrics: 7,700/22,000 × $10,000 Surgery: 8,800/22,000 × $10,000 Costs after allocation 4-244 Building Services Energy $20,000 $10,000 Pediatrics Geriatrics $90,000 Surgery $60,000 $100,000 (20,000) 3,333 10,000 6,667 (10,000) 2,500 3,500 4,000 $0 $0 $95,833 $73,500 $110,667 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing b Step Method Budgeted costs before allocation Allocation of Building Services: Energy: 4,000/40,000 × $20,000 Pediatrics: 6,000/40,000 × $20,000 Geriatrics: 18,000/40,000 × $20,000 Surgery: 12,000/40,000 × $20,000 Allocation of Energy: Pediatrics: 5,500/22,000 × $12,000 Geriatrics: 7,700/22,000 × $12,000 Surgery: 8,800/22,000 × $12,000 Costs after allocation Building Services Energy $20,000 $10,000 Pediatrics Geriatrics $90,000 Surgery $60,000 $100,000 (20,000) 2,000 3,000 9,000 6,000 (12,000) 3,000 4,200 4,800 $0 $0 $96,000 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: 8,9 Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition $73,200 $110,800 AICPA FN: Reporting 4-245 Chapter Systems Design: Process Costing 230 Cerce Corporation uses the direct method to allocate service department costs to operating departments The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing Departmental costs Employee hours Space occupied– square feet Service Department Administrative Facilities $29,440 $46,740 5,000 2,000 2,000 Operating Department Assembly Finishing $258,880 $320,280 29,000 17,000 2,000 30,000 8,000 Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied Required: Allocate the service department costs to the operating departments using the direct method Ans: Allocation rate for administrative costs = Cost to be allocated ÷ Allocation base = $29,440 ÷ (29,000 + 17,000) = $0.64 Allocation rate for facilities costs = Cost to be allocated ÷ Allocation base = $46,740 ÷ (30,000 + 8,000) = $1.23 Administrative Facilities Departmental costs $29,440 $46,740 Allocation: Administrative costs (29,440) Facilities costs (46,740) Total costs after allocation $ $ AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy 4-246 Assembl y Finishing $258,880 $320,280 18,560 10,880 36,900 9,840 $314,340 $341,000 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 231 Sandven Corporation uses the direct method to allocate its two service department costs to its two operating departments Data concerning those departments follow: Service Service Operating Operating Department Department Department Department A B X Y Departmental costs $34,300 $66,230 $161,710 $503,220 Allocation base A 5,000 1,000 32,000 17,000 Allocation base B 8,000 2,000 32,000 5,000 Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B Required: Allocate the service department costs to the operating departments using the direct method Ans: Allocation rate for Service Department A costs = Cost to be allocated ÷ Allocation base = $34,300 ÷ (32,000 + 17,000) = $0.70 Allocation rate for Service Department B costs = Cost to be allocated ÷ Allocation base = $66,230 ÷ (32,000 + 5,000) = $1.79 Service Service Operating Operating Department Department Department Department A B X Y Departmental costs $34,300 $66,230 $161,710 $503,220 Service Department A (34,300) 22,400 11,900 Service Department B (66,230) 57,280 8,950 Total costs after allocation $ $ $241,390 $524,070 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 4-247 Chapter Systems Design: Process Costing 232 The direct method is used by Kurpinski Clinic to allocate its service department costs to its operating departments Data concerning those departments follow: Operating Departments Service Departments Information Technology Personnel Departmental costs $34,650 $31,356 Computers 22 17 Employees 15 15 Pediatrics Prenatal $566,960 $688,220 44 46 75 42 Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees Required: Allocate the service department costs to the operating departments using the direct method Ans: Allocation rate for Information Technology costs = Cost to be allocated ÷ Allocation base = $34,650 / (44 + 46) = $385.00 Allocation rate for Personnel costs = Cost to be allocated ÷ Allocation base = $31,356 / (75 + 42) = $268.00 Departmental costs Information Technology Personnel Total costs after allocation Service Departments Information Technology Personnel $34,650 $31,356 (34,650) (31,356) $ $ AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy 4-248 Operating Departments Pediatrics Prenatal $566,960 $688,220 16,940 20,100 17,710 11,256 $604,000 $717,186 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 233 Mercik Consultancy uses the direct method to allocate its service department costs to its operating departments The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice Data concerning those departments follow: Departmental costs Computers Employees Service Departments Information AdminiTechnology stration $26,244 $21,696 39 14 32 10 Operating Departments Corporate Government Practice Practice $226,170 $477,980 51 30 70 26 Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees Required: Allocate the service department costs to the operating departments using the direct method Ans: Allocation rate for Information Technology costs = Cost to be allocated ÷ Allocation base = $26,244 / (51 + 30) = $324.00 Allocation rate for Administration costs = Cost to be allocated ÷ Allocation base = $21,696 / (70 + 26) = $226.00 Departmental costs Information Technology Administration Total costs after allocation Information Technology Administration $26,244 $21,696 (26,244) (21,696) $ $ AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Corporate Practice $226,170 Government Practice $477,980 16,524 15,820 9,720 5,876 $258,514 $493,576 AICPA FN: Reporting 4-249 Chapter Systems Design: Process Costing 234 Bazin Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y Service Service Operating Department Department Department A B X Departmental costs $31,280 $55,640 $161,490 Allocation base A 4,000 1,000 26,000 Allocation base B 6,000 2,000 30,000 Operating Department Y $399,350 19,000 2,000 The company uses the step-down method to allocate service department costs to operating departments Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B Required: Allocate the service department costs to the operating departments using the stepdown method Ans: Departmental costs Service Department A costs Service Department B costs Total costs after allocation Service Department A $31,280 (31,280) $ Service Department B $55,640 680 (56,320) $ Operating Department X $161,490 17,680 52,800 $231,970 Operating Department Y $399,350 12,920 3,520 $415,790 Allocation rate for Service Department A costs = Cost to be allocated / Allocation base = $31,280 / (1,000 + 26,000 + 19,000) = $0.68 Allocation rate for Service Department B costs = Cost to be allocated / Allocation base = ($55,640 + $680) / (30,000 + 2,000) = $1.76 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy 4-250 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 235 Coakley Corporation uses the step-down method to allocate service department costs to operating departments The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing Service Department Administration Facilities Departmental costs $22,260 $69,130 Employee time 4,000 1,000 Space occupied 6,000 1,000 Operating Department Assembly Finishing $137,520 $900,750 25,000 16,000 34,000 9,000 Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied Required: Allocate the service department costs to the operating departments using the stepdown method Ans: Departmental costs Administration costs Facilities costs Total costs after allocation Administration Facilities $22,260 $69,130 (22,260) 530 (69,660) $ $ Assembl y Finishing $137,520 $900,750 13,250 8,480 55,080 14,580 $205,850 $923,810 Allocation rate for Administration Department costs = Cost to be allocated ÷ Allocation base = $22,260 ÷ (1,000 + 25,000 + 16,000) = $0.53 Allocation rate for Facilities Department costs = Cost to be allocated ÷ Allocation base = ($69,130 + $530) ÷ (34,000 + 9,000) = $1.62 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 4-251 Chapter Systems Design: Process Costing 236 Georgeson Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care Departmental costs Employees Computers Service Department Administration IT $13,340 $15,805 4 Operating Department Emergency Intensive Room Care $597,700 $396,240 142 83 65 46 Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers Required: Allocate the service department costs to the operating departments using the stepdown method Ans: Departmental costs Administration costs IT costs Total costs after allocation Administration $13,340 (13,340) $ Emergency IT Room $15,805 $597,700 290 8,236 (16,095) 9,425 Intensive Care $396,240 4,814 6,670 $ $407,724 $615,361 Allocation rate for Administration Department costs = Cost to be allocated ÷ Allocation base = $13,340 ÷ (5 + 142 + 83) = $58 Allocation rate for IT Department costs = Cost to be allocated ÷ Allocation base = ($15,805 + $290) ÷ (65 + 46) = $145 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy 4-252 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 237 Lester Natal Clinic uses the step-down method to allocate service department costs to operating departments The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care Departmental costs Employees Computers Service Department Administration IT $20,448 $22,506 2 Operating Department Prenatal Postnatal Care Care $570,720 $369,880 131 79 45 42 Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers Required: Allocate the service department costs to the operating departments using the stepdown method Ans: Departmental costs Administration costs IT costs Total costs after allocation Administration $20,448 (20,448) $0 IT $22,506 288 (22,794) $0 Prenatal Care $570,720 12,576 11,790 $595,086 Postnatal Care $369,880 7,584 11,004 $388,468 Allocation rate for Administration Department costs = Cost to be allocated ÷ Allocation base = $20,448 ÷ (3 + 131 + 79) = $96 Allocation rate for IT Department costs = Cost to be allocated ÷ Allocation base = ($22,506 + $288) ÷ (45 + 42) = $262 AACSB: Analytic AICPA BB: Critical Thinking Appendix: 4B LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 4-253 Chapter Systems Design: Process Costing 4-254 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition ... transferred out during the month 383,000 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-15 Chapter Systems Design: Process Costing 31 Colby Company has a process costing system... AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition 4-9 Chapter Systems Design: Process Costing 17 The completion of goods... Thinking AICPA FN: Reporting Appendix: 4A LO: 2,3,5,6 Level: Hard 4-10 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter Systems Design: Process Costing 20 Which of the following