hilton 9e global edition solutions manual chapter17

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CHAPTER 17

Allocation of Support Activity Costs and JointCosts

ANSWERS TO REVIEW QUESTIONS

17-1 A service department is a unit in an organization that is not involved directly inproducing the organizations goods or services. However, a service department doesprovide a service that enables the organizations production process to take place.roduction departments, on the other hand, are units that are directly involved inproducing the organizations goods and services. An e!ample o" a servicedepartment in a bank would be the computer department or the human resources

department. An e!ample o" a #production$ department in a bank would be theconsumer loan department.

17-% &he term reciprocal services re"ers to the situation in which two or more servicedepartments provide services to each other.

17-' (a) *nder the direct method o" service department cost allocation, all servicedepartment costs are allocated directly to the production departments, and noneo" these costs are allocated to other service departments.

(b) *nder the step-down method, a se+uence is "irst established "or allocation o"

service department costs. &hen the costs incurred in the "irst service departmentin the se+uence are allocated among all other departments that use that servicedepartments services, including other service departments. &he methodproceeds in a similar "ashion through the se+uence o" service departments.

(c) *nder the reciprocal-services method, a system o" simultaneous e+uations isestablished to re"lect the reciprocal provision o" services among servicedepartments. &hen all o" the service departments costs are allocated among allo" the departments that use the various service departments output o" services.&he reciprocal-services method o" service department cost allocation is the onlymethod that "ully accounts "or the reciprocal provision o" services among

departments.

17- &he "irst department in the se+uence under the step-down method is the servicedepartment that serves the largest number o" other service departments. &he seconddepartment in the se+uence is the service department that serves the second-largestnumber o" service departments, and so "orth. &he se+uence among tied servicedepartments usually is an arbitrary choice.

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17- &he dual-allocation approach improves the resulting cost allocations becausevariable costs are allocated in accordance with short-run usage, and "i!ed costs areallocated in accordance with long-run service re+uirements.

17- A potential behavioral problem that can result "rom the dual approach to service

department cost allocation is that service department managers may have adisincentive to provide correct predictions "or their departments long-run servicedepartment needs.

17-7 /udgeted service department costs should be allocated rather than actual servicedepartment costs. Allocating actual costs would reduce the incentive "or cost controlin the service departments.

17-0 *nder two-stage allocation with departmental overhead rates, costs "irst aredistributed to departments then they are allocated "rom service departments toproduction departments.2inally, they are assigned "rom production departmentsto

products or services. Departmentsplay a key role as intermediate cost ob3ects underthis approach. 4n an activity-based costing (A/5) system, on the other hand, the keyrole is played by activities,not departments. 2irst, the costs o" various activitiesareassigned to activity-cost pools then these costs are assigned to products orservices. &he breakdown o" costs by activity in an A/5 system is much "iner then abreakdown by departments. &he A/5 approach generally will provide a much moreaccurate cost "or each o" the organizations products or services.

17-6 (a) oint-production process8 A production process in which the processing o" acommon input results in two or more outputs called 3oint products.

(b) oint costs8 &he costs incurred in a 3oint production process be"ore the 3ointproducts become identi"iable as separate products.

(c) oint products8 &he output o" a 3oint production process.

(d) 9plit-o"" point8 &he point in a 3oint production process at which the 3oint productsbecome identi"iable as separate products.

(e) 9eparable costs8 5osts incurred to process 3oint products "urther a"ter they passthe split-o"" point in a 3oint production process.

(") /y-product8 A 3oint product with very little value relative to the other 3ointproducts.

17-1: *nder the physical-units method o" 3oint cost allocation, 3oint production costs areallocated among the 3oint products in proportion to a physical characteristic o" thoseproducts, such as weight or volume.


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17-11 *nder the relative-sales-value method o" 3oint cost allocation, 3oint production costsare allocated to the 3oint products in proportion to their sales value at the split-o""point.

17-1% &he net realizable value o" a 3oint product is e+ual to its ultimate sales value minus

the separable costs incurred between the split-o"" point and the products "inal "orm.*nder the net-realizable-value method o" 3oint cost allocation, 3oint production costsare allocated among the 3oint products in proportion to their net realizable values.

17-1' oint cost allocations are use"ul "or product-costing purposes. roduct costing isuse"ul "or income determination, "or inventory valuation, "or third-partyreimbursement situations, and various other purposes.

17-1 &he managerial accountant generally should be care"ul not to use 3oint costallocations "or making decisions.


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SO"UTIONS TO E#ERCISES

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1. 5ost allocation using direct method8

Academic @epartments *sing 9ervicesiberal Arts 9ciences

rovider o" 9ervice5ost to /eAllocated roportion Amount roportion Amount

ibraryBBBBBBB. C7:,::: ('D) C:,::: (%D) C'::,:::5omputing 9ervicesB '%:,::: ('D0) 1%:,::: (D0) %::,:::&otalBBBBBBBB. C1,:7:,::: C7:,::: C::,:::

Erand total C1,:7:,:::%. 4n the electronic version o" the solutions manual, press the 5&= key and click on

the "ollowing link8 /uild a 9preadsheet 17-1.!ls

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1. 5ost allocation using step-down method8

9ervice @epartments

Academic @epartments

*sing 9ervices5omputing

9ervices ibraryiberal

Arts 9ciences5osts prior to allocationB C'%:,::: C7:,:::Allocation o" 5omputing

9ervice costsFBBBBB. C'%:,::: ,::: (%D1:) C 6,:::('D1:) C1:,:::(D1:)Allocation o" ibrary

costsBBBBBBBBB. C01,::: 00,:: ('D) '%,::(%D)&otal costs allocated to

each departmentBBBB C0,:: C0,::

&otal cost allocated toacademic departmentsB. C1,:7:,:::

FAllocated "irst because 5omputing 9ervices provides service to the ibrary, but not viceversa.


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oint5ost

ointroducts

uantity at9plit-G"" oint

=elativeroportion

Allocationo"

oint 5ost

Gat bran 1%,::: kilograms .: C',:::FC:,:::

=olled oats 0,::: kilograms .: %,:::I&otal %:,::: kilograms C:,:::

FC',::: J C:,::: .:IC%,::: J C:,::: .:

;4?*&;9)

oint5ost

ointroducts

uantity at9plit-G""

9alesrice

9ales Kalue at9plit-G"" oint

=elativeroportion

Allocationo"

oint 5ostGat bran 1%,::: kg C1.: C10,::: .%6F C%,7:I

C:,:::=olled oats 0,::: kg '.:: %,::: .71F ',%:FF

&otal C%,::: C:,:::

F=ounded

IC%,7: J C:,::: .%6FFC',%: J C:,::: .71

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1. @ecision analysis8

4ncremental revenue per kilogram8

9ales price o" powdered health drink enhancer ...................... C.:

9ales price o" rolled oats ..........................................................

'.::4ncremental revenue .................................................................. C1.:4ncremental processing cost per kilogram .............................. .:4ncremental revenue less incremental cost ............................. C 1.::

&he rolled oats should be processed "urther into the health drink enhancer.


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SO"UTIONS TO )RO*"E+S

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1. @irect method8

roduction @epartments>achining Assembly


H=BBBBBBBBB C10:,::: (D6) C0:,::: (D6) C1::,:::>aintenanceBBBB. %':,::: ('D7) 1:7,'''F (:D7) 1%%,7F5A@BBBBBBBB.

':,:::(D:) %%,:: (1D:) 07,::

&otalBBBBBBBB C7:,::: C6,0'' C'1:,17Erand total C7:,:::

F=ounded

%. 9e+uence "or step-down method8

1st8 H= (serves % other service departments)

%nd8 >aintenance (serves 1 other service department)'rd8 5A@ (serves no other service departments)


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'. 9tep-down method8

9ervice @epartments roduction @epartmentsH= >aintenance 5A@ >olding Assembly

5osts prior to

allocationBBBBB. C10:,::: C%':,::: C':,:::Allocation o"

H= @epartmentcostsBBBBBBB. C10:,::: 6,::: (D1::) 6,:::(D1::) C7%,:::(:D1::) C6:,:::(:D1::)

Allocation o">aintenance@epartment costsB. C%'6,::: 1,6'0 F(D0:) 1:,'F('D0:) 116,::(:D0:)

Allocation o" 5A@@epartment costsB. C'7',6'0 %0:, F(D:) 6',0 F(1D:)

&otal costallocated to eachdepartmentBBBB. C7,:17 C':%,60

&otal cost allocated to production departments C7:,::%FFF=oundedFFC% overallocation due to rounding

. 4n the electronic version o" the solutions manual, press the 5&= key and click on the "ollowing link8 /uild a 9preadsheet17-%.!ls

McGraw-Hill/Irwin 2011 The McGraw-Hill Companies, Inc.

17-1- Solutions Manual
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1. @irect method combined with dual allocation8

(a) Kariable costs8


rovider o" 9ervice5ost to /eAllocated roportionF Amount roportionF Amount

H=BBBBBBBBB. C :,::: (D6) C %%,%%%I (D6) C %7,770I

>aintenanceBBBB.. 0:,::: ('D7) '7,'''I (:D7) %,7I5A@BBBBBBBB..

:,:::(D:) '7,:: (1D:) 1%,::

&otal variable costBB C10:,::: C 67,:II C

0%,6IIF9hort-run usage proportions ("rom preceding problem).I=oundedIIC67,: M C0%,6 J C10:,:::

(b) 2i!ed costs8


rovider o" 9ervice5ost to /eAllocated roportionF Amount roportionF Amount

H=BBBBBBBBB. C1':,::: ('D0) C',%6I (:D0) C7,71I

>aintenanceBBBB.. 1:,::: (0D7%) 1::,::: (%D7%) :,:::5A@BBBBBBBB..

'::,:::(0D:) %:,::: (1%D:) :,:::

&otal "i!ed costBBB.C0:,:::

C'6',%6 FFC10,71FF

Fong-run proportions ("rom this problem)I=oundedFF5heck8 C'6',%6 M C10,71 J C0:,:::


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(c) &otal costs allocated8

>achining AssemblyKariable costs ............................................................................ C 67,: C 0%,62i!ed costs ................................................................................. '6',%6 10,71&otal costs .................................................................................. C6:,0 C%6,1

Erand total .................................................................................. C7:,:::

%. 9tep-down method combined with dual allocation8

As in the preceding problem, the se+uence o" allocation is H=, >aintenance, and 5A@,respectively.


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(a) Kariable costs8


5osts prior to

allocationBBBBB C:,::: C0:,::: C:,:::Allocation o"

H= @epartmentcostsBBBBBBB C:,::: %,:: (D1::)F %,::(D1::) C%:,:::(:D1::) C%,:::(:D1::)

Allocation o">aintenance@epartment costsB C0%,:: ,1 I(D0:) ',:6I('D0:) 1,%:(:D0:)

Allocation o" 5A@@epartment costsB C7, ',%% (D:) 1,1 (1D:)

&otal variable costallocated to eachdepartmentBBBB C66,''FF C0:,FF

F9hort-run usage proportions are used ("rom preceding problem).I=ounded.FFC66,'' M C0:, J C10:,:::


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(b) 2i!ed costs8


5osts prior to

allocationBBBBB C1':,::: C1:,::: C'::,:::Allocation o"

H= @epartmentcostsBBBBBBB C1':,::: ,:: (D1::)F 1',:::(1:D1::) C,::('D1::) C,:::(:D1::)

Allocation o">aintenance@epartment costsB C1,:: 1,: (0D0:) 6',6::(0D0:) ,6:(%D0:)

Allocation o" 5A@@epartment costsB C'%0,: %%,6%: (0D:) ,7': (1%D:)

&otal "i!ed costallocated to eachdepartmentBBBB C:%,'%:I C177,0:I

Fong-run usage proportions are used ("rom this problem).I5heck8 C:%,'%: M C177,0: J C0:,:::


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(c) &otal costs allocated8

>achining AssemblyKariable costs ...................................................................... C 66,'' C 0:,2i!ed costs ........................................................................... :%,'%: 177,0:&otal costs ............................................................................ C:1, C%0,'

Erand total ............................................................................ C7:,:::

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1. @irect method8

roduction @epartment;tching 2inishing


>aintenanceBBBBB.. C 0,::: (1D6) C ,''' (0D6) C %,75omputingBBBBBB. %:,::: (7D0) %10,7: (1D0) '1,%:&otal service department costs allocated ...................... C%%,:0' C 7',617Gverhead costs traceable to

production departments ................................................%::,::: '%:,:::&otal overhead cost ......................................................... C%,:0' C'6',617

@irect-labor hours (@H)(%: %,:::) ................................................................... :,:::(0: %,:::) ................................................................... 1:,:::

Gverhead rate per hour(total overhead N @H) .................................................. C1:.:%F C%.%F

5heck on allocation procedure89ervice department costs allocated to ;tching ................................................ C%%,:0'9ervice department costs allocated to 2inishing ............................................. 7',617&otal costs to be allocated (C0,::: M C%:,:::) .............................................. C%60,:::

F=ounded


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%. 9tep-down method8

9ervice @epartments roduction @epartments5omputing >aintenance ;tching 2inishing

5osts prior to allocationBB. C%:,::: C0,:::Allocation o" 5omputing

@epartment costsBBBBB %:,::: :,::: (%D1:) C17,:::(7D1:) C %,:::(1D1:)Allocation o" >aintenance

@epartment costsBBBBB 60,:::

1:,006 (1D6) 07,111 (0D6)&otal service department cost allocated ............................... C10,006 C11%,111Gverhead costs traceable to

production departments ...................................................... %::,::: '%:,:::&otal overhead cost ................................................................ C'0,006 C'%,111

@irect-labor hours (@H)(%: %,:::) .......................................................................... :,:::(0: %,:::) .......................................................................... 1:,:::Gverhead rate per hour

(total overhead N @H) ......................................................... C6.7F C%.7:F

5heck on allocation procedure89ervice department costs allocated to ;tching ............................................. C10,0069ervice department costs allocated to 2inishing ..........................................11%,111&otal costs to be allocated (C0,::: M C%:,:::) ........................................... C%60,:::F=ounded


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1. hysical-units method o" allocation8

oint5ost

ointroducts


=elativeroportion

Allocation o"oint 5ost

C'::,::: >9/ ...........:,::: ............... :O ..................... C1%:,::: 5/ ............6:,::: ............... :O ..................... 10:,::: &otal .......... 1:,:::&he 3oint cost allocated to 5/ is C10:,:::.

%. =elative-sales-value method o" allocation8

oint5ost

ointroducts


=elativeroportion


C'::,::: >9/ ........... C1%:,::: ............. %O ..................... C 7,::: 5/ ............':,::: ............. 7O ..................... %%,::: &otal .......... C0:,:::&he 3oint cost allocated to >9/ is C7,:::.


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'. ?et-realizable-value method o" allocation8

oint5ost

ointroducts

9alesKalue o"

2inal roductAdditional 5osto" rocessing

?et=ealizable

Kalue=elative

roportionAllocation o"

oint 5ostC'::,::: >9/ . . . C'::,:::F. .. .. .. C1::,::: ........ C%::,::: %O........ ... C 7,:::

5/ ....0::,:::I.......%::,::: ........ ::,::: 7O..... ...... %%,:::&otal ... C0::,:::

FC :,:::IC1: (6:,::: L 1:,:::)

&he unit cost o" 5/ is computed as "ollows8

oint cost allocation .................................................................. C%%,:::

Additional processing costs ..................................................... %::,:::&otal cost .................................................................................... C%,:::

uantity (good units) ................................................................. 0:,:::

5ost per unit (C%,::: N 0:,:::).............................................. C.'1(rounded)

. 9ales value i" coated (:,::: C) ........................................... C'::,:::Additional cost o" coating ......................................................... 1::,:::4ncremental contribution i" coated ........................................... C%::,:::

9ales value i" uncoated (:,::: C%) ...................................... 1%:,:::@ecline in contribution i" uncoated .......................................... C 0:,:::

&he contribution would decrease by C0:,::: i" the mine support braces are notprocessed "urther.

. &he allocation o" 3oint costs is irrelevant to the decision about coating the minesupport braces. &he decision should be based entirely on in"ormation pertaining to

events "rom the split-o"" point "orward. &hus, the 3oint cost allocation results werenot used in making this production decision.


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1. lantwide overhead rates8

@epartments (numbers in thousands)>olding 5omponent Assembly &otal

>anu"acturing departments8Kariable overhead ...................... C ',:: C1:,::: C1,:: C':,:::2i!ed overhead ........................... 17,:: ,%:: ,1:: %6,0::&otal manu"acturing

department overhead .......... C%1,::: C1,%:: C%%,:: C6,0::9ervice departments8ower .......................................... 10,::>aintenance ............................... ,:::

&otal estimated overhead...... C0%,%::

;stimated direct-labor hours (@H)8>olding ....................................... ::5omponent ................................. %,:::Assembly .................................... 1,::&otal estimated

direct-labor hours ................ ,:::lantwide overhead rate J

@AHestimated

overheadestimated

J:::,

%::,0%C

J C%:. per direct-labor hour


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%. @epartmental overhead rates8

@epartments (numbers in thousands)9ervice >anu"acturing

ower >aintenance >olding 5omponent Assembly@epartmental overhead

costs ................................... C10,:: C ,::: C%1,::: C1,%:: C%%,::a. Allocation o" mainten-

ance costs(direct method)

roportions8 6:D1%,%D1%, 1:D1% ............ (,:::) %,00: 0:: '%:

b. Allocation o" powercosts (dual, directmethod)

2i!ed costs(C1%,:::)8

roportions8::D1:::, ':D1:::,1:D1::: ...................(1%,:::) ,::: ,%:: 1,0:: Kariable costs(C,::)8

roportions8

':D0::, '%:D0::,1%:D0:: (,::) %,00: %,: 6:

&otal allocateddepartmentaloverhead costs ....... C : C : C'%,7: C%',7: C%,0:

c. 5ost driver ....................... 07>H

%,::: @H

1,:: @H

=ate (departmental overheadN units o" cost driver) ....................................... C'7.

per >H

C11.00per

@H

C17.1%per

@H


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'. >emorandum

@ate8 &oday

&o8 resident, &ravelcra"t 5ompany

2rom8 4.>. 9tudent

9ub3ect8 *se o" departmental overhead rates

&ravelcra"t should use departmental rates to assign overhead to its products. &hecriterion "or choosing an allocation base is a close relationship between costincurrence and use o" the base. &his relationship e!ists with di""erent bases indi""erent departments, necessitating the use o" departmental rates. &he companys

production departments are dissimilar in that the >olding @epartment is machine-intensive while the other two departments are labor-intensive.

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1. ?et-realizable-value method o" allocation8

oint

5ostper =un

ointroducts

9ales Kalue o"2inal roductF

Additional 5osto" rocessing

?et

=ealizableKalue

=elativeroportionI


H&-' ....... C%,0::,:::........C07,::: ....... C1,6%,::: .....0.1O ..... C 7,1::C1,::,::: 9&- ....... %,1::,:::........01,::: .......1,%0,::: .....'%.1:O ..... 6,::

=- .. .. .. .. . 0:,:::... .. .. .:,::: ....... 76:,::: .....16.7O ..... %7,::&otal C,:::,::: C1,7::,:::

F9ales price +uantity producedI?et realizable value N C,:::,:::, which is the sum o" the net realizable values o" the three 3oint

products, rounded


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%. Gctober production cost per liter8

roduct H&-' 9&- =-

oint cost allocation ................................. C 7,1:: C 6,:: C%7,::Additional processing costs .................... 07,::: 01,::: :,:::&otal cost C1,0,1:: C1,%,:: C'',::uantity produced (liters) ........................ 7::,::: ':,::: 17:,:::5ost per liter (rounded) ............................ C%.%1 C'.% C1.60

4nventory valuation8

roduct H&-'

9&- =-Gctober 1 inventory (liters) ........................ 10,::: %,::: ',:::Gctober production (liters) ....................... 7::,::: ':,::: 17:,:::uantity available (liters) ........................... 710,::: :%,::: 17',:::Gctober sales (liters) .................................. :,::: '%,::: 1:,:::Gctober '1 inventory (liters) ...................... 0,::: 77,::: %',:::5ost per liter ......................................... C%.%1 C'.% C1.60

Gctober '1 inventory (dollars) .................. C1:,%0: C%70,7: C ,:'. /iondi 4ndustries should sell 9&- at the split-o"" point. &he incremental revenue o"

sales beyond the split-o"" point is less than the incremental cost o" "urtherprocessing.

er liter sales value beyond the split-o"" point ........................... C.::er liter sales value at the split-o"" point ..................................... '.0:4ncremental sales value ................................................................ C%.%:ess8 Additional processing costs per liter

(C01,::: N ':,::: liters) .......................................................... %.'' (rounded)er liter gain (loss) o" "urther processing ................................... C (.1')


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1. oint cost allocations using the relative-sales-value method8

Gmega8 3oint cost allocation J o""-splitatvaluesalestotal o""-splitatvaluesalessGmegaP 3oint cost

J

:::,1::C

:::,1-CC:,::: J C6,:::

Qappa8 3oint cost allocation J total 3oint cost L @eltas allocationL Gmegas allocation

J C:,::: L C',::: L C6,::: J C1,:::

9ummary o" 3oint cost allocations8

@elta .................................................................................................... C',:::(given)Qappa .................................................................................................. 1,:::Gmega ................................................................................................. 6,:::&otal .................................................................................................... C:,:::

%. @eltas 3oint cost allocation J

o""-splitatvaluesalestotal

o""-splitatvaluesaless@eltaP3oint cost

C',::: J

:::,1::C

XC:,:::

X J C',:::

:::,.:C

:::,1::C

X J C:,:::

@eltas sales value at split-o"" J C:,:::


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'. oint cost allocation using the net-realizable-value method8

oint5ost

ointroducts

9ales Kalue o"2inal roduct

9eparable5ost o"

rocessing

?et=ealizable

Kalue=elative


oint 5ost

C:,::: GmegaQappa@elta C 7:,::: C 7,::: C ',::: .' C'7,0::%,::: ,::: %:,::: .%: 1%,:::%:,::: ',::: 17,::: .17 1:,%::

&otal C11,::: C1,::: C1::,::: C:,:::


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1. oint costs arise "rom the simultaneous processing or manu"acturing o" two or moreproducts made "rom the same process. &hese 3oint costs are not traceable to anysingle product.

&he split-o"" point is the stage in the manu"acturing process at which 3oint productscan be identi"ied as individual units. 2uture costs are then accounted "or separately.

%. &he dollar value o" the "inished-goods inventories on ?ovember ': "or K


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=G/;> 17-'1 (5G?&4?*;@)

4nventory values on ?ovember ':8

K


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=G/;> 17-'% ( >4?*&;9)

1. hysical-units method8

oint

5ostper =un

ointroducts


=elativeroportion


C%:,::: 5ompod ......... 1%:,::: liters............. :O................... C1:,::: *ltrasene ...... .0:,::: liters.......... .. :O................... 1::,::: &otal %::,::: liters C%:,:::

&he 3oint cost allocated to 5ompod is C1:,:::.

%. =elative-sales-value method8

oint5ost

per =unoint

roducts9ales Kalue at9plit-G"" oint

=elativeroportion


C%:,::: 5ompod ......... C%:,::: ............. 0O ..................... C1%:,::: *ltrasene ...... .%:,::: ............. %O ..................... 1':,::: &otal C::,::: C%:,:::

&he 3oint cost allocated to *ltrasene is C1':,:::.

'. ?ow there are additional processing costs beyond the split-o"" point.

a. Additional processing costs have no e""ect on the physical-units method o"allocation. &he 3oint cost allocated to *ltrasene is C1::,:::, as calculated inre+uirement (1).

b. ?et-realizable-value method8

oint5ost

per =unoint

roducts9ales Kalue o"2inal roduct

9eparable 5osto" rocessing

?et=ealizable

Kalue=elative

roportion


C%:,:::5ompod .... C%:,:::......... C1%,::: .......... C%%0,::: 7O........... C1%,::*ltrasene...%:,:::.........00,::: .......... 17%,::: 'O..... .. .. .. 1:7,:: &otal C::,::: C%:,:::

&he 3oint cost allocated to 5ompod is C1%,::.


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=G/;> 17-'% (5G?&4?*;@)

. 4ncremental revenue per liter "rom "urther processinginto 5ompodalene (C%.: L C%.::) ..................................................................... C.:

4ncremental cost per liter "rom "urther processing8

rocessing cost ................................................................................. C.:9ales commission (C%.: 1:O) ..................................................... .% .4ncremental loss per liter "rom "urther processing

into 5ompodalene ............................................................................... C(.:)

5onclusion8 @o not process 5ompod into 5ompodalene. &he "irm should sell5ompod. (?ote that the C.1: per liter separable processing cost to obtain5ompod isirrelevant. &he +uestion is what to do with the 5ompod afterit has been obtained.&he relevant data are the incremental costs and bene"its associated with turning5ompod into 5ompodalene.)

. &he director o" research, 5harles a>ar+ue, acted improperly in asking the assistantcontroller to alter her analysis in "avor o" producing 5ompodalene. 4" he believes the"urther processing o" 5ompod is in >ontpelier 5ie.s best interests, he should try toback up his claim with some pro3ected cost reductions and the potential impact onthe companys market. He could present his own estimates to Anne->arie Euillotin,or directly to the managers responsible "or making the "inal decision.

Euillotin should not alter her analysis to support the production o" 5ompodalene. 4n theabsence o" any "urther in"ormation, she should recommend against the "urther

processing o" 5ompod. 9everal ethical standards "or management accountants(listed in 5hapter 1) are relevant, including the "ollowing8

Competence

rovide decision support in"ormation and recommendations that are accurate,

clear, concise, and timely.

Objectivity

5ommunicate in"ormation "airly and ob3ectively.

@isclose "ully all relevant in"ormation that could reasonably be e!pected to

in"luence an intended users understanding o" the reports, analyses, andrecommendations.


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=G/;> 17-'% (5G?&4?*;@)

. 4t is pre"erable to sell 5ompod than to sell 5ompodalene, as the solution tore+uirement () showed. ?evertheless, it is pre"erable to sell 5ompodalene than to

sell nothing, since each liter o" 5ompodalene makes a positive contribution towardcovering the 3oint production cost, "i!ed costs, and pro"it.

4ncremental revenue "rom sale o" a liter o"5ompodalene (i" the alternative is no sale) ..................................................... C%.:

4ncremental cost (i" the alternative is to stopproduction at the split-o"" point)89eparable processing to produce 5ompod a"ter

the split-o"" point .................................................................................. C.1:2urther processing cost to turn 5ompod into 5ompodalene ..............:9ales commission .................................................................................. .%&otal ........................................................................................................ .7

5ontribution to the 3oint production cost, "i!ed costs,and pro"it ................................................................................................... C1.0

=G/;> 17-'' (': >4?*&;9)

1. =eciprocal-services method8

;+uations8 M J 0,::: M .%C

CJ %:,::: M .1M

Rhere Mdenotes the total cost o" the >aintenance @epartment

Cdenotes the total cost o" the 5omputing @epartment


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=G/;> 17-'' (5G?&4?*;@)

9olution o" e+uations8

MJ 0,::: M .% (%:,::: M .1M)

MJ 0,::: M :,::: M .:%M

.60 MJ 60,:::

MJ 1::,:::

CJ %:,::: M .1 (1::,:::)

CJ %:,:::

Allocation8

9ervice @epartments roduction @epartments>aintenance 5omputing ;tching 2inishing

&raceable costs ....................... C 0,::: C%:,:::Allocation o" >aintenance

@epartment costs ................. (1::,:::) 1:,:::(.1) C 1:,:::(.1) C 0:,:::(.0)Allocation o" 5omputing

@epartment costs ................. %,:::(.%) (%:,:::) 10%,::: (.7) %,::: (.1)&otal service department costs allocated ............................. C16%,::: C1:,:::Gverhead costs traceable to production departments ........ %::,::: '%:,:::&otal overhead cost ................................................................ C'6%,::: C%,:::

@irect-labor hours (@H)(%: %,:::) ......................................................................... :,:::(0: %,:::) ......................................................................... 1:,:::Gverhead rate per hour (total overhead N @H) ................... C6.0: C%.'5heck on allocation procedure89ervice department costs allocated to ;tching ............... C16%,:::9ervice department costs allocated to 2inishing ............ 1:,:::

&otal ..................................................................................... C%60,:::

%. &he direct allocation method ignores any service rendered by one servicedepartment to another. Allocation o" each service departments total cost is madedirectly to the production departments. &he step-down method recognizes oneservice departments usage o" services, but ignores the others usage o" services.&he reciprocal services allocation method recognizes all service department supportto other service departments through the use o" simultaneous e+uations. &his


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allocation procedure should lead to more accurate results that would be o" greatervalue to management.

=G/;> 17-' ( >4?*&;9)

1. Kariable costs8

?otation8 Rdenotes the total variable cost o" atient =ecordsHdenotes the total variable cost o" Human =esources

Adenotes the total variable cost o" Administration and Accounting

;+uations8 RJ %,::: M .:H (1)HJ 1,::: M .:A (%)

AJ 7,:: M .%:H (')

&hese e+uations are based on the variablecosts and short-rnusage proportions

given in ;!hibit 17-%.

9olution o" e+uations8 9ubstitute "rom e+uation (') into e+uation (%).

H J 1,::: M .:(7,:: M .%: H).66H J 17,'7

H J 17,1 (rounded)9ubstitute the value o" Hinto e+uations (1) and (').

R J %,::: M .:(17,1)R J %,070 (rounded)

A J 7,:: M .%:(17,1)A J 1,:1: (rounded)


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=G/;> 17-' (5G?&4?*;@)

Allocation o" variable costs8

9ervice @epartments@irect-atient-5are

@epartmentsHuman

=esources

(H=)

Administrationand

Accounting

atient

=ecords Grthopedics 4nternal >edicine&raceable costs ........................ C1,::: C7,:: C%,:::Allocation o" H=

@epartment costs ................... (17,1) ',1:(.%:) 070F(.:) C ,'00F(.%) C 0,77F(.:)Allocation o" Administration

and Accounting@epartment costs ................... %,1F(.:) (1,:1:) -:-(:) 17,0F(.') ':,:(.:)

Allocation o" atient=ecords @epartment costs .... (:) (:) (%,070) 7,' F(.':) 17,1 F(.7:)

&otal variable cost allocatedto each direct-patient-care

department ................................ C%6,7:I C,767I

F=oundedIC%6,7: M C,767 J C0,:% di""ers "rom the total variable cost (C0,::) because o" cumulative rounding error.


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=G/;> 17-' (5G?&4?*;@)

%. 2i!ed costs8

?otation8 Rdenotes the total "i!ed cost o" atient =ecordsHdenotes the total "i!ed cost o" Human =esources

Adenotes the total "i!ed cost o" Administration and Accounting

;+uations8 RJ 7,::: M .1:H ()HJ ,::: M .1:A ()

AJ 1%,:: M .1:H ()

&hese e+uations are based on the "i!ed costs given in ;!hibit 17-% and the lon!-rnusage proportions given in ;!hibit 17-.

9olution o" e+uations8 9ubstitute "rom e+uation () into e+uation ().

H J ,::: M .1:(1%,:: M .1: H).66H J 6,%:

H J 6,00 (rounded)9ubstitute the value o" Hinto e+uations () and ().

RJ 7,::: M .1:(6,00)R J 01,60 (rounded)

A J 1%,:: M .1:(6,00)A J 10,0 (rounded)


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=G/;> 17-' (5G?&4?*;@)

Allocation o" "i!ed costs8

9ervice @epartments@irect-atient-5are

@epartmentsHuman

=esources

(H=)

Administrationand

Accounting

atient

=ecords Grthopedics 4nternal >edicine&raceable costs ........................ C,::: C1%,:: C7,:::Allocation o" H=

@epartment costs ................... (6,00) ,60F(.1:) ,60F(.1:) C11,67:F(.%:) C',6:6F(.:)Allocation o" Administration

and Accounting@epartment costs ................... 1,06F(.1:) (10,0) -:-(:) ,010F(.) ,010F(.)

Allocation o" atient=ecords @epartment costs .... -:-(:) -:-(:) (01,60) '%,76 (.:) 6,161 (.:)

&otal "i!ed cost allocatedto each direct-patient-care

department ......................... C111,0%=

C11,610I

F=oundedIC111,0% M C11,610 J C%',::


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=G/;> 17-' (5G?&4?*;@)

&otal costs allocated8

Grthopedics4nternal

>edicine

Kariable costs ...................................................................... C %6,7: C ,7672i!ed costs ........................................................................... 111,0% 11,610&otal costs ............................................................................ C11,%07 C%:0,71

Erand total ............................................................................ C':,::%F

F@i""ers "rom the total cost to be allocated (C':,:::) due to cumulative roundingerror in the allocation o" the variable costs.


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SO"UTIONS TO CASES

5A9; 17-' (: >4?*&;9)

1. roduct output in kilograms8

roduct roportion&otal

Qilograms

Qilogramsost in

rocessing

?etQilograms

9licesBBB.. .' 6,:: S 6,::5rushedBB. .%0 7,:: S 7,::uiceBBBB .%7 7%,6:: ,::F 7,::*Animal "eedB .1: %7,::: S %7,:::&otalBBBB. %7:,::: ,:: %,::

F;vaporation loss is 0O o" the remaining good output. etXdenote the remaining+uantity o" 3uice8

7%,6:: L .:0X J X

7%,6:: J 1.:0X

7,:: J X

5heck8 evaporation loss J (0O)(7,::) J ,::

%. ?et realizable value at the split-o"" point8

roductQilograms o"roduction

9ellingrice

9ales=evenue

9eparable5ost

?et =ealizable Kalue

Amount ercent9licesBB 6,:: .: C ,7:: C ,7:: C %,::: %O5rushedB 7,:: . 1,0: 1:,0: '1,::: '1OuiceBB. 7,:: .': %:,%: ',%: 17,::: 17O&otalBB.. C110,': C10,': C1::,::: 1::O


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5A9; 17-' (5G?&4?*;@)

'. Allocation o" 3oint costs8

5utting department costs ......................................................... C:,:::

ess net realizable value o" by-product9ales value ............................................................................. C%,7::9eparable cost ....................................................................... (7:: ) ?et realizable value o" animal "eed .................................. %,:::/alance o" 3oint cost to be allocated to main products

in proportion to net realizable value ...................................... C0,:::

Allocation o" 3oint cost89licesBBBBB.. %O ........................................................ C':,1:5rushedBBBB.. '1O ........................................................ 17,60:uiceBBBBBB 17O ........................................................ 6,0:&otal ............................................................................................ C0,:::


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5A9; 17-' (: >4?*&;9)

1. @iagram o" 3oint production process8


17-!( Solutions Manual

9plit-o""point

&otal 3oint cost8C%1:,::: "ora 1:,::: liter

batch

1:,::: literso" inputcostingC:,:::

ointproduction

process costingC1:,:::

=esoline,

sales value8C%::,:::(0,::: ! C%)

9eparable

processcosting8 C:,:::(0,::: ! C)

=esolite,

sales value8C%0:,:::(0,::: ! C')

Qrypto,sales value8

C1::,:::(%,::: ! C:)

9eparableprocess costing8

C':,:::(%,::: ! C1)

Qryptite,sales value8

C16:,:::(%,::: ! C6)


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5A9; 17-' (5G?&4?*;@)

%. Allocation o" 3oint costs8

a. hysical-units method8

oint5ost

ointroducts


=elativeroportion


C%1:,::: =esoline 0,::: kilograms 0D1: C10,:::Qrypto %,::: kilograms %D1: %,:::&otal 1:,::: kilograms C%1:,:::

b. =elative-sales-value method8

oint5ost

ointroducts


=elativeroportion


C%1:,::: =esoline C%::,::: %D' C1:,:::Qrypto 1::,::: 1D' 7:,:::&otal C'::,::: C%1:,:::

c. ?et-realizable-value method8

oint5ost

ointroducts

9alesKalue o"

2inal roduct

9eparable5ost o"

rocessing

?et=ealizable

Kalue=elative


oint 5ost

C%1:,:::Qryptite

=esolite C%0:,::: C:,::: C%:,::: .: C1%,:::16:,::: ':,::: 1:,::: .: 0,:::&otal C::,::: C%1:,:::


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5A9; 17-' (5G?&4?*;@)

'. @ecision analysis8

4ncremental revenue per kilogram8

9ales price o" Gmega ............................................................ C1':9ales price o" Qryptite ........................................................... 64ncremental revenue .............................................................. C '

4ncremental cost per kilogram8F

9eparable processing ........................................................... C:ackaging .............................................................................. 4ncremental cost ....................................................................

4ncremental loss per kilogram................................................... C(11)

5onclusion8 &he Qryptite should not be processed "urther into Gmega.

F?otice that these are the separable costs incurred a"ter Qryptite has already beenproduced. &he separable costs o" processing Qrypto into Qryptite are properlye!cluded.

. &he 3oint cost allocation should not be used in the decision analysis. &he total 3ointcost will not be a""ected by the decision.

. 4n the electronic version o" the solutions manual, press the 5&= key and click onthe "ollowing link8 /uild a 9preadsheet 17-'.!ls

[Final version]
http://var/www/apps/conversion/tmp/scratch_1/Build%20a%20Spreadsheet%20%2017-36.xlshttp://var/www/apps/conversion/tmp/scratch_1/Build%20a%20Spreadsheet%20%2017-36.xls

hilton 9e global edition solutions manual chapter17

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