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17-2
The term reciprocal services refers to the situation in which two or more service
departments provide services to each other.
17-3 (a) Under the direct method of service department cost allocation, all service
department costs are allocated directly to the production departments, and none
of these costs are allocated to other service departments.
(b) Under the step-down method, a sequence is first established for allocation of
service department costs. Then the costs incurred in the first service department
in the sequence are allocated among all other departments that use that service
departments services, including other service departments. The method
proceeds in a similar fashion through the sequence of service departments.
(c) Under the reciprocal-services method, a system of simultaneous equations is
established to reflect the reciprocal provision of services among service
departments. Then all of the service departments costs are allocated among all
of the departments that use the various service departments output of services.
The reciprocal-services method of service department cost allocation is the only
method that fully accounts for the reciprocal provision of services among
departments.
17-4
The first department in the sequence under the step-down method is the service
department that serves the largest number of other service departments. The second
department in the sequence is the service department that serves the second-largest
number of service departments, and so forth. The sequence among tied service
departments usually is an arbitrary choice.
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
17-5
17-6
A potential behavioral problem that can result from the dual approach to service
department cost allocation is that service department managers may have a
disincentive to provide correct predictions for their departments long-run service
department needs.
17-7
Budgeted service department costs should be allocated rather than actual service
department costs. Allocating actual costs would reduce the incentive for cost control
in the service departments.
17-8
Under two-stage allocation with departmental overhead rates, costs first are
distributed to departments; then they are allocated from service departments to
production departments. Finally, they are assigned from production departments to
products or services. Departments play a key role as intermediate cost objects under
this approach. In an activity-based costing (ABC) system, on the other hand, the key
role is played by activities, not departments. First, the costs of various activities are
assigned to activity-cost pools; then these costs are assigned to products or
services. The breakdown of costs by activity in an ABC system is much finer then a
breakdown by departments. The ABC approach generally will provide a much more
accurate cost for each of the organizations products or services.
17-11 Under the relative-sales-value method of joint cost allocation, joint production costs
are allocated to the joint products in proportion to their sales value at the split-off
point.
17-12 The net realizable value of a joint product is equal to its ultimate sales value minus
the separable costs incurred between the split-off point and the products final form.
Under the net-realizable-value method of joint cost allocation, joint production costs
are allocated among the joint products in proportion to their net realizable values.
17-13 Joint cost allocations are useful for product-costing purposes. Product costing is
useful for income determination, for inventory valuation, for third-party
reimbursement situations, and various other purposes.
17-14 The managerial accountant generally should be careful not to use joint cost
allocations for making decisions.
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
SOLUTIONS TO EXERCISES
EXERCISE 17-15 (15 MINUTES)
1.
Provider of Service
Library.
Computing Services
Total.
Cost to Be
Allocated
$750,000
320,000
$1,070,000
Proportion
(3/5)
(3/8)
Amount
$450,000
120,000
$570,000
Amount
$300,000
200,000
$500,000
$1,070,000
Grand total
2.
Proportion
(2/5)
(5/8)
In the electronic version of the solutions manual, press the CTRL key and click on
the following link: Build a Spreadsheet 17-15.xls
Service Departments
Computing
Services
Library
Costs prior to allocation $320,000 $750,000
Allocation of Computing
Service costs*. $320,000 64,000(2/10)
Allocation of Library
costs.
$814,000
Total costs allocated to
each department
Total cost allocated to
academic departments.
Academic Departments
Using Services
Liberal
Arts
Sciences
$96,000(3/10)
$160,000(5/10)
488,400(3/5)
325,600(2/5)
$584,400
$485,600
$1,070,000
*Allocated first because Computing Services provides service to the Library, but not vice
versa.
McGraw-Hill/Irwin
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17-4
In the electronic version of the solutions manual, press the CTRL key and click on
the following link: Build a Spreadsheet 17-16.xls
Cost to Be
Allocated
$153,000
229,500
$382,500
Proportion
(6/9)
(50/85)
Amount
$102,000
135,000
$237,000
Proportion
(3/9)
(35/85)
Amount
$51,000
94,500
$145,500
$382,500
Grand total
EXERCISE 17-18 (15 MINUTES)
HR
Computing
$153,000 $229,500
$45,900(3/10)
100,800(35/85)
$146,700
$382,500
Joint
Products
Oat bran
Quantity at
Split-Off Point
12,000 kilograms
Relative
Proportion
.60
Rolled oats
Total
8,000 kilograms
20,000 kilograms
.40
Allocation
of
Joint Cost
$36,000*
$60,000
24,000
$60,000
Joint
Products
Oat bran
Quantity at
Split-Off
12,000 kg
Sales
Price
$1.50
Rolled oats
Total
8,000 kg
3.00
Allocation
Sales Value at Relative
of
Split-Off Point Proportion Joint Cost
$18,000
.429*
$25,740
$60,000
24,000
$42,000
34,260**
$60,000
.571*
*Rounded
Decision analysis:
$4.50
3.00
$1.50
.50
$1.00
The rolled oats should be processed further into the health drink enhancer.
McGraw-Hill/Irwin
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17-6
Joint
Cost
Joint
Products
Oat bran
Sales Value of
Final Product
$24,000
(12,000 $1.50)
Enhancer
28,000
(8,000 $4.50)
Net
Allocation
Separable Cost Realizable Relative
of
of Processing Value* Proportion Joint Cost
-0$18,000
.36
$21,600
$30,000
$4,000
(8,000 x $.50)
32,000
.64
$50,000
38,400 **
$30,000
*Net realizable value = sales value of final product separable cost of processing
Notation:
Equations:H=153,000 + .15C
(1)
C=229,500 + .10H
(2)
229,500 + .10(190,279)
C=
248,528 (rounded)
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Service Departments
HR
Computing
Traceable costs. $153,000
$229,500
Allocation of HR
Department costs... (190,279)
19,028*(.1)
Allocation of Computing
Department costs 37,279*(.15) (248,528)
Total cost allocated to
each direct customer
service department.
Total costs allocated.
$57,084*(.3)
86,985*(.35)
$144,069
$382,500
*Rounded
McGraw-Hill/Irwin
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17-8
SOLUTIONS TO PROBLEMS
PROBLEM 17-24 (40 MINUTES)
1.
Direct method:
Production Departments
Machining
Assembly
Provider of Service
HR
Maintenance.
CAD.
Cost to Be
Allocated
$180,000
230,000
350,000
$760,000
Total
Proportion
(4/9)
(35/75)
(45/60)
Amount
Proportion Amount
$80,000
(5/9)
$100,000
107,333* (40/75)
122,667*
262,500
(15/60)
87,500
$310,167
$449,833
$760,000
Grand total
*Rounded
2.
1st:
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Managerial Accounting, 9/e Global Edition
HR
Costs prior to
allocation.
Allocation of
HR Department
costs.
Allocation of
Maintenance
Department costs.
Allocation of CAD
Department costs.
Total cost
allocated to each
department.
$180,000
$180,000
Service Departments
Maintenance
$230,000
9,000(5/100)
$239,000
CAD
Production Departments
Molding
Assembly
$350,000
9,000(5/100)
$72,000(40/100)
$90,000(50/100)
14,938*(5/80)
104,563*(35/80)
119,500(40/80)
280,454*(45/60)
93,485*(15/60)
$457,017
$302,985
$373,938
$760,002**
*Rounded
**$2 overallocation due to rounding
4. In the electronic version of the solutions manual, press the CTRL key and click on the following link: Build a Spreadsheet
17-24.xls
McGraw-Hill/Irwin
17-10
Provider of Service
HR.
Maintenance..
CAD..
Cost to Be
Allocated
$50,000
80,000
50,000
Proportion*
(4/9)
(35/75)
(45/60)
$180,000
Total variable cost
Amount
Proportion* Amount
$22,222
(5/9)
$27,778
37,333
(40/75)
42,667
37,500
(15/60)
12,500
$
$97,055
82,945
Rounded
Cost to Be
Allocated
$130,000
150,000
300,000
$580,000
Proportion*
(35/85)
(48/72)
(48/60)
Amount
Proportion*
$53,529
(50/85)
100,000
(24/72)
240,000
$393,529 **
(12/60)
Amount
$76,471
50,000
60,000
$186,471
**
Rounded
**Check: $393,529 + $186,471 = $580,000
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Machining
$97,055
393,529
$490,584
Assembly
$82,945
186,471
$269,416
$760,000
As in the preceding problem, the sequence of allocation is HR, Maintenance, and CAD,
respectively.
McGraw-Hill/Irwin
Inc.
17-12
HR
Costs prior to
allocation
Allocation of
HR Department
costs
Allocation of
Maintenance
Department costs
Allocation of CAD
Department costs
Total variable cost
allocated to each
department
Service Departments
Maintenance
$50,000
$80,000
$50,000
2,500(5/100)*
$82,500
CAD
Production Departments
Molding
Assembly
$50,000
2,500(5/100)
$20,000(40/100)
$25,000(50/100)
5,156 (5/80)
36,094 (35/80)
41,250(40/80)
$57,656
43,242(45/60)
$99,336**
Rounded.
**$99,336 + $80,664 = $180,000
McGraw-Hill/Irwin
Managerial Accounting, 9/e Global Edition
14,414(15/60)
$80,664**
HR
Costs prior to
allocation
Allocation of
HR Department
costs
Allocation of
Maintenance
Department costs
Allocation of CAD
Department costs
Total fixed cost
allocated to each
department
$130,000
$130,000
Service Departments
Maintenance
$150,000
6,500(5/100)*
$156,500
CAD
Production Departments
Molding
Assembly
$300,000
13,000(10/100)
15,650(8/80)
$328,650
$45,500(35/100)
$65,000(50/100)
93,900(48/80)
46,950(24/80)
262,920(48/60)
65,730(12/60)
$402,320
$177,680
McGraw-Hill/Irwin
17-14
Assembly
$80,664
177,680
$258,344
$760,000
Direct method:
Production Department
Etching
Finishing
Cost to Be
Provider of Service
Allocated
Proportion
Maintenance..
$48,000
(1/9)
Computing.
250,000
(7/8)
Total service department costs allocated ......................
Overhead costs traceable to
production departments ................................................
Total overhead cost .........................................................
Amount
$5,333
218,750
$224,083
Proportion Amount
(8/9)
$42,667
(1/8)
31,250
$73,917
200,000
$424,083
320,000
$393,917
160,000
$2.462*
$224,083
73,917
$298,000
*Rounded
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Step-down method:
Service Departments
Computing Maintenance
Costs prior to allocation. $250,000 $48,000
Allocation of Computing
Department costs 250,000 50,000(2/10)
Allocation of Maintenance
Department costs
98,000
Total service department cost allocated ...............................
Overhead costs traceable to
production departments ......................................................
Total overhead cost ................................................................
Production Departments
Etching
Finishing
$175,000(7/10) $25,000(1/10)
320,000
$432,111
160,000
$2.70*
McGraw-Hill/Irwin
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17-16
2.
Sales Value at
Relative
Allocation of
Split-Off Point
Proportion
Joint Cost
$120,000 ............. 25% ..................... $75,000
360,000 ............. 75% ..................... 225,000
$480,000
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Sales
Joint
Joint
Value of
Cost Products Final Product
$300,000 MSB ... $300,000*.......
CBL .... 800,000.......
Total ...
Net
Additional Cost Realizable
Relative Allocation of
of Processing
Value
Proportion Joint Cost
$100,000 ........ $200,000 25%........... $75,000
200,000 ........ 600,000 75%........... 225,000
$800,000
*$5 60,000
$225,000
200,000
$425,000
80,000
$5.31(rounded)
$300,000
100,000
$200,000
120,000
$80,000
The contribution would decrease by $80,000 if the mine support braces are not
processed further.
5.
The allocation of joint costs is irrelevant to the decision about coating the mine
support braces. The decision should be based entirely on information pertaining to
events from the split-off point forward. Thus, the joint cost allocation results were
not used in making this production decision.
McGraw-Hill/Irwin
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17-18
$10,000
6,200
$16,500
6,100
$30,000
29,800
$21,000
$16,200
$22,600
$59,800
18,400
4,000
$82,200
500
2,000
1,500
4,000
estimated overhead
estimated DLH
$82,200
4,000
McGraw-Hill/Irwin
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$3,500
17,500
Departmental overhead
costs ................................... $18,400
a.Allocation of maintenance costs
(direct method)
Proportions: 90/125,
25/125, 10/125 ............
b.Allocation of power
costs (dual, direct
method)
Fixed costs
($12,000):
Proportions:
500/1000, 350/1000,
150/1000 ................... (12,000)
Variable costs
($6,400):
Proportions:
360/800, 320/800,
120/800
(6,400)
Total allocated
departmental
overhead costs ....... $0
$ 4,000
$21,000
$16,200
$22,600
(4,000)
2,880
800
320
6,000
4,200
1,800
2,880
2,560
960
$32,760
$23,760
$25,680
875
MH
2,000
DLH
1,500
DLH
$37.44
per
MH
$11.88
per
DLH
$17.12
per
DLH
$0
McGraw-Hill/Irwin
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17-20
Memorandum
Date:
Today
To:
From:
I.M. Student
Joint
Cost
per Run
Joint
Sales Value of Additional Cost
Products Final Product* of Processing
HTP-3 ....... $2,800,000........$874,000 .......
$1,400,000 PST-4 ....... 2,100,000........816,000 .......
RJ-5 ......... 850,000........60,000 .......
Total
Net
Realizable
Relative Allocation of
Value
Proportion Joint Cost
$1,926,000 .....48.15% ..... $ 674,100
1,284,000 .....32.10% ..... 449,400
790,000 .....19.75% ..... 276,500
$4,000,000
$1,700,000
Net realizable value $4,000,000, which is the sum of the net realizable values of the three joint
products, rounded
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
HTP-3
$ 674,100
874,000
$1,548,100
PST-4
$ 449,400
816,000
$1,265,400
RJ-5
$276,500
60,000
$336,500
700,000
$2.21
350,000
$3.62
170,000
$1.98
HTP-3
18,000
700,000
718,000
650,000
68,000
$2.21
$150,280
PST-4
52,000
350,000
402,000
325,000
77,000
$3.62
$278,740
RJ-5
3,000
170,000
173,000
150,000
23,000
$1.98
$45,540
Inventory valuation:
Product
October 1 inventory (liters) ........................
October production (liters) .......................
Quantity available (liters) ...........................
October sales (liters) ..................................
October 31 inventory (liters) ......................
Cost per liter .........................................
October 31 inventory (dollars) ..................
3.
Biondi Industries should sell PST-4 at the split-off point. The incremental revenue of
sales beyond the split-off point is less than the incremental cost of further
processing.
Per liter sales value beyond the split-off point ...........................
Per liter sales value at the split-off point .....................................
Incremental sales value ................................................................
Less: Additional processing costs per liter
($816,000 350,000 liters) ..........................................................
Per liter gain (loss) of further processing ...................................
McGraw-Hill/Irwin
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17-22
$6.00
3.80
$2.20
2.33 (rounded)
$ (.13)
joint cost
$15,000
$36,000(given)
15,000
9,000
$60,000
joint cost
$100,000
X = $36,000 $60,000
X = $60,000
Deltas sales value at split-off = $60,000
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Joint
Cost
Joint
Sales Value of
Products Final Product
$70,000
Delta
25,000
$60,000 Kappa
Omega
20,000
Total
$115,000
McGraw-Hill/Irwin
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17-24
Separable
Cost of
Processing
$7,000
5,000
3,000
$15,000
Net
Realizable
Value
$63,000
20,000
17,000
$100,000
Relative Allocation of
Proportion Joint Cost
.63
$37,800
.20
12,000
.17
10,200
$60,000
Joint costs arise from the simultaneous processing or manufacturing of two or more
products made from the same process. These joint costs are not traceable to any
single product.
The split-off point is the stage in the manufacturing process at which joint products
can be identified as individual units. Future costs are then accounted for separately.
2.
The dollar value of the finished-goods inventories on November 30 for VX-4 and HD10 are calculated as follows:
Joint costs to be allocated:
Total joint costs incurred.................................................................
Less: Net realizable value (NRV) of FT-5*.......................................
Joint costs to be allocated...............................................................
$1,568,000
68,000
$1,500,000
HD-10
320,000
$6.375
$2,040,000
920,000
$1,120,000
2,800,000*
.40
$1,500,000
$ 600,000
McGraw-Hill/Irwin
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HD-10
$ 600,000
920,000
$1,520,000
320,000
$
4.75
26,000
$ 123,500
Xian Chemicals should continue to process HD-10 beyond the split-off point, since
the incremental revenue is $.50 greater per liter than the incremental cost. The joint
cost is irrelevant to the decision because it will not change regardless of the
decision to sell as is or process further. The analysis follows:
Per Unit
Per-liter sales value after split-off...........................
Per-liter sales value at split-off................................
Incremental sales value............................................
Additional processing cost......................................
Incremental revenue.................................................
$6.375
3.000
$3.375
2.875
$ .500
Total
$1,080,000*
920,000
$ 160,000
$920,000/320,000 liter
McGraw-Hill/Irwin
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17-26
Physical-units method:
Joint
Cost
Joint
Quantity at
Relative
Allocation of
per Run
Products
Split-Off Point
Proportion
Joint Cost
$250,000 Compod ......... 120,000 liters............. 60%................... $150,000
Ultrasene ....... 80,000 liters............ 40%................... 100,000
Total
200,000 liters
$250,000
Relative-sales-value method:
Joint
Cost
Joint
per Run
Products
$250,000 Compod .........
Ultrasene .......
Total
Sales Value at
Relative
Allocation of
Split-Off Point
Proportion
Joint Cost
$240,000 ............. 48% ..................... $120,000
260,000 ............. 52% ..................... 130,000
$500,000
$250,000
Now there are additional processing costs beyond the split-off point.
a. Additional processing costs have no effect on the physical-units method of
allocation. The joint cost allocated to Ultrasene is $100,000, as calculated in
requirement (1).
b. Net-realizable-value method:
Joint
Cost
Joint
Sales Value of
per Run Products Final Product
$250,000 Compod .... $240,000.........
Ultrasene... 260,000.........
Net
Allocation of
Separable Cost Realizable
Relative Joint Cost
of Processing
Value
Proportion
$12,000 .......... $228,000 57%........... $142,500
88,000 .......... 172,000 43%........... 107,500
Total
$400,000
$250,000
$.60
.66
$(.06)
Conclusion: Do not process Compod into Compodalene. The firm should sell
Compod. (Note that the $.10 per liter separable processing cost to obtain Compod is
irrelevant. The question is what to do with the Compod after it has been obtained.
The relevant data are the incremental costs and benefits associated with turning
Compod into Compodalene.)
5.
The director of research, Charles LaMarque, acted improperly in asking the assistant
controller to alter her analysis in favor of producing Compodalene. If he believes the
further processing of Compod is in Montpelier Cie.s best interests, he should try to
back up his claim with some projected cost reductions and the potential impact on
the companys market. He could present his own estimates to Anne-Marie Guillotin,
or directly to the managers responsible for making the final decision.
Guillotin should not alter her analysis to support the production of Compodalene. In the
absence of any further information, she should recommend against the further
processing of Compod. Several ethical standards for management accountants
(listed in Chapter 1) are relevant, including the following:
Competence
Provide decision support information and recommendations that are accurate,
clear, concise, and timely.
Objectivity
Communicate information fairly and objectively.
Disclose fully all relevant information that could reasonably be expected to
influence an intended users understanding of the reports, analyses, and
recommendations.
McGraw-Hill/Irwin
Inc.
17-28
$2.60
.76
$1.84
Reciprocal-services method:
Equations:
M = 48,000 + .2C
C = 250,000 + .1M
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Production Departments
Etching
Finishing
$10,000(.1)
$80,000(.8)
182,000(.7)
$192,000
200,000
$392,000
26,000(.1)
$106,000
320,000
$426,000
40,000
$9.80
160,000
$2.663
$192,000
106,000
$298,000
The direct allocation method ignores any service rendered by one service
department to another. Allocation of each service departments total cost is made
directly to the production departments. The step-down method recognizes one
service departments usage of services, but ignores the others usage of services.
The reciprocal services allocation method recognizes all service department support
to other service departments through the use of simultaneous equations. This
McGraw-Hill/Irwin
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17-30
allocation procedure should lead to more accurate results that would be of greater
value to management.
PROBLEM 17-34 (55 MINUTES)
1.
Variable costs:
Notation:
Equations:
R = 24,000 + .05H(1)
H = 15,000 + .05A(2)
A = 47,500 + .20H(3)
These equations are based on the variable costs and short-run usage proportions
given in Exhibit 17-2.
Solution of equations: Substitute from equation (3) into equation (2).
H=15,000 + .05(47,500 + .20H)
.99H=17,375
H=17,551 (rounded)
Substitute the value of H into equations (1) and (3).
R=24,000 + .05(17,551)
R=24,878 (rounded)
A=47,500 + .20(17,551)
A=51,010 (rounded)
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Human
Resources
(HR)
Traceable costs ........................ $15,000
Allocation of HR
Department costs ................... (17,551)
Allocation of Administration
and Accounting
Department costs ................... 2,551*(.05)
Allocation of Patient
Records Department costs ....
(0)
Total variable cost allocated
to each direct-patient-care
department ................................
Service Departments
Administration
and
Patient
Accounting
Records
$47,500
$24,000
3,510(.20)
(51,010)
(0)
878*(.05)
-0-(0)
(24,878)
Direct-Patient-Care
Departments
Orthopedics
Internal Medicine
$4,388*(.25)
$8,776*(.50)
17,854*(.35)
30,606(.60)
7,463*(.30)
17,415*(.70)
$29,705
$56,797
*Rounded
$29,705 + $56,797 = $86,502; differs from the total variable cost ($86,500) because of cumulative rounding error.
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Fixed costs:
Notation:
Equations:
R = 76,000 + .10H
H = 45,000 + .10A
A = 142,500 + .10H
(4)
(5)
(6)
These equations are based on the fixed costs given in Exhibit 17-2 and the long-run
usage proportions given in Exhibit 17-5.
Solution of equations: Substitute from equation (6) into equation (5).
H=45,000 + .10(142,500 + .10H)
.99H=59,250
H=59,848 (rounded)
Substitute the value of H into equations (4) and (5).
R=76,000 + .10(59,848)
R=81,985 (rounded)
A=142,500 + .10(59,848)
A=148,485 (rounded)
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Human
Resources
(HR)
Traceable costs ........................ $45,000
Allocation of HR
Department costs ................... (59,848)
Allocation of Administration
and Accounting
Department costs ................... 14,849*(.10)
Allocation of Patient
Records Department costs ....
-0-(0)
Total fixed cost allocated
to each direct-patient-care
department .........................
Direct-Patient-Care
Departments
Service Departments
Administration
and
Patient
Accounting
Records
$142,500
$76,000
5,985*(.10)
(148,485)
-0-(0)
Orthopedics
Internal Medicine
5,985*(.10)
$11,970*(.20)
$35,909*(.60)
-0-(0)
66,818*(.45)
66,818*(.45)
32,794(.40)
(81,985)
$111,582
*Rounded
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17-34
49,191(.60)
$151,918
Orthopedics
Variable costs ...................................................................... $29,705
Fixed costs ........................................................................... 111,582
Total costs ............................................................................ $141,287
Grand total ............................................................................
Internal
Medicine
$56,797
151,918
$208,715
$350,002*
*Differs from the total cost to be allocated ($350,000) due to cumulative rounding
error in the allocation of the variable costs.
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 9/e Global Edition
SOLUTIONS TO CASES
CASE 17-35 (40 MINUTES)
1.
Product
Slices..
Crushed.
Juice
Animal feed
Total.
Proportion
.35
.28
.27
.10
Total
Kilograms
94,500
75,600
72,900
27,000
270,000
Kilograms
Lost in
Processing
5,400*
5,400
Net
Kilograms
94,500
75,600
67,500*
27,000
264,600
*Evaporation loss is 8% of the remaining good output. Let X denote the remaining
quantity of juice:
72,900 .08X
72,900
1.08 X
67,500
Product
Slices
Crushed
Juice.
Total..
McGraw-Hill/Irwin
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17-36
Kilograms of
Production
94,500
75,600
67,500
Selling
Price
.60
.55
.30
Sales
Revenue
$56,700
41,580
20,250
$118,530
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Managerial Accounting, 9/e Global Edition
$60,000
$2,700
(700)
2,000
$58,000
$30,160
17,980
9,860
$58,000
10,000 liters
of input
costing
$60,000
Joint
production
process costing
$150,000
McGraw-Hill/Irwin
17-38
Resoline,
sales value:
$200,000
(8,000 x $25)
Separable
process
costing: $40,000
(8,000 x $5)
Resolite,
sales value:
$280,000
(8,000 x $35)
Separable
process costing:
$30,000
(2,000 x $15)
Kryptite,
sales value:
$190,000
(2,000 x $95)
Split-off point
Krypto,
sales value:
$100,000
(2,000 x $50)
Joint
Products
Resoline
Krypto
Total
Quantity at
Split-Off Point
8,000 kilograms
2,000 kilograms
10,000 kilograms
Relative
Proportion
8/10
2/10
Allocation of
Joint Cost
$168,000
42,000
$210,000
Sales Value at
Split-Off Point
$200,000
100,000
$300,000
Relative
Proportion
2/3
1/3
Allocation of
Joint Cost
$140,000
70,000
$210,000
b. Relative-sales-value method:
Joint
Cost
$210,000
Joint
Products
Resoline
Krypto
Total
c. Net-realizable-value method:
Joint
Cost
Joint
Products
Resolite
$210,000 Kryptite
Sales
Value of
Final Product
$280,000
190,000
Total
McGraw-Hill/Irwin
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Managerial Accounting, 9/e Global Edition
Separable
Cost of
Processing
$40,000
30,000
Net
Realizable
Value
$240,000
160,000
$400,000
Relative Allocation of
Proportion Joint Cost
.60
$126,000
.40
84,000
$210,000
Decision analysis:
Incremental revenue per kilogram:
Sales price of Omega ............................................................
Sales price of Kryptite ...........................................................
Incremental revenue ..............................................................
$130
95
$35
$40
6
46
$(11)
4.
The joint cost allocation should not be used in the decision analysis. The total joint
cost will not be affected by the decision.
4.
In the electronic version of the solutions manual, press the CTRL key and click on
the following link: Build a Spreadsheet 17-36.xls
[Final version]
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