MULTIPLE-CHOICE QUIZ

1.c
2.b
3.d
4.c
5.a
6.e
7.b
8.a

9.b $100,000 90,000 / (90,000 + 100,000) = $47,368

10.d $150,000 2,000 / (2,000 + 2,500) = $66,667
11.b $275,000 125 / (5 + 125 + 100) = $149,457
12.d $250,000 + ($275,000 5) / (5 + 125 + 100) 1,500 / (3,500 + 1,500) =
$255,978 1,500 / 5,000 = $76,793
13.a The direct method does not allocate support departments cost to other support
departments.
14.b The Repair Department performs allocation first. Thus, the Tool Department will receive
cost allocation of ($35,000 1/40) = $875.

Chapter6

PRACTICE TEST
EXERCISE 2(Apex Corporation)
1.Single charging rate = ($10,000 / 100) + $15 = $115
Department
Scheduling..............................
Accounting..............................
Finance...................................
Data Processing.....................
Engineering............................
Legal ......................................

Reports
10
25
45
15
30
25

Rate.....Total
$115. $1,150
115.....2,875
115.....5,175
115.....1,725
115.....3,450
1152,875
. $17,250

2.Dual charging rate:Variable rate = $15; Fixed charge as follows:

Capacity
Fixed Cost
Department
Reports
PercentAllocated
Scheduling..............................
5
5$ 500
Accounting..............................
25
25.....2,500
Finance...................................
20
20.....2,000
Data Processing.....................
15
15.....1,500
Engineering............................
25
25.....2,500
Legal ......................................
10
101,000
100. $10,000
V/OH
Department
Scheduling..............................
Accounting..............................
Finance...................................
Data Processing.....................
Engineering............................
Legal ......................................

V/OH
Fixed Cost
Reports
Rate. .CostsAllocatedTotal
10
$15...$ 150$ 500$ 650
25
15........375 2,500 2,875
45
15........675 2,000 2,675
15
15........225 1,500 1,725
30
15........450 2,500 2,950
25
15 3751,0001,375
...$2,250$10,000$12,250

3.The only time a department will prefer a single charging rate is when the actual usage is less than the expected usage.
When actual usage equals expected usage, a single charging rate will equal a dual charging rate. If actual usage is
greater than expected, the department will be charged a larger amount due to fixed costs.

EXERCISE 3(Triad Company)

1.Single charging rate = [($30,000 + $15,000) / (175 + 225)] + $50
Single charging rate = ($45,000 / 400) + $50 = $162.50
Overhead cost allocated to Memphis: 175 hours $162.50 = $28,437.50
Overhead cost allocated to Columbus: 225 hours $162.50 = $36,562.50
2.Dual charging rate:Variable charge = $50 hour
Memphis
175 hours = 43.75% of total hours
Fixed cost:
$45,000 0.4375 = $19,687.50
Overhead cost allocated: $19,687.50 fixed + ($50 175 hours) = $28,437.50
Columbus
225 hours = 56.25% of total hours
Fixed cost:
$45,000 0.5625 = $25,312.50
Overhead cost allocated: $25,312.50 fixed + ($50 225 hours) = $36,562.50
3.Memphis:
Columbus:

$19,687.50 + ($50 180 hours) = $19,687.50 + $9,000 = $28,687.50

$25,312.50 + ($50 270 hours) = 25,312.50 + 13,500 = 38,812.50
$45,000.00 + $22,500 = $67,500.00

Good principles of performance evaluation will use the budgeted rates for the allocation rather than the actual rates.
The inefficiencies in the Legal Department ($3,000 over-budget fixed costs and $900 over-budget variable costs) are
not allocated to the users.

Support Department Cost Allocation

EXERCISE 4(QRS Company)

1.Direct Method
Fabricating
No. of employees..............................
Service percentage......................
Square feet ........................10,000
Service percentage......................

Assembly
Finishing............................................................................................
30....................40 20
90
33.33%........44.44%22.22%100.00%
28,000............15,00053,000
18.87%........52.83%28.30%100.00%

Administrative cost allocation*..........

$16,666.67.....$22,222.22$11,111.11$50,000.00
Janitorial cost allocation**.................
5,660.38.......15,849.068,490.5730,000.00
Direct overhead cost.........................
40,000.00......50,000.0025,000.00
Total overhead cost...........................
$62,327.05.....$88,071.28$44,601.68
Divided by direct labor hours............5,0006,0002,000
Departmental OH rate per DLH........$12.47$14.68$22.30
**Departmental employee % $50,000
**Departmental square feet % $30,000

Chapter6

2.Sequential Method
As indicated in the service proportion table, the Administration Department provides the highest percentage of service
to other service departments. Thus, the administrative costs will be allocated first, then followed by the Janitorial
Department cost allocation.
Service Proportion Table
Admin.
No. of employees .................................
Service percentage..........................
Square feet
2,000........................
Service percentage..........................

Janitorial FabricatingAssemblyFinishingTotal
10
30........40
20
100
10.00%30.00%40.00%20.00%100.00%
10,000
3.64%

28,000 15,00055,000
18.18%50.91%27.27%100.00%

Sequential Cost Allocation

Admin.
Direct overhead cost.............................
First step:Allocate admin. costs..........

Janitorial
$ 50,000)
$(50,000)

Second step:Allocate janitorial costs

Determine allocation percentages:
Square feet .................................
Allocation percentage..................

10,000 28,00015,000 53,000

18.87%52.83%28.30%100.00%

Janitorial cost allocation...................

Total overhead costs.............................
Divided by direct labor hours................
Departmental OH rate per DLH............

FabricatingAssembly FinishingTotal
$30,000)$40,000$50,000$25,000
$5,000)$15,000$20,000$10,000

$(35,000) $6,604$18,491$9,906$35,000
$0)

$0)$61,604$88,491$44,906
5,0006,0002,000
$ 12.32$ 14.75$ 22.45

3.Reciprocal Method
Service Proportion Table
Admin.
No. of employees .................................
Service percentage..........................
Square feet
2,000........................
Service percentage..........................

Janitorial FabricatingAssembly FinishingTotal

10
30..........40
20
100
10.00%30.00%40.00%20.00%100.00%
10,000
3.64%

28,000...15,00055,000
18.18%50.91%27.27%100.00%

Simultaneous equations can be created based on the service proportion table above.
A = $50,000 +.0364J
J = $30,000 + 0.1A
where A = Administration Department total costs
J = Janitorial Department total costs
A = $50,000 + .0364 ($30,000 + 0.1A)
A = $50,000 + $1,092 + 0.00364A
J = $30,000 + (0.1 $51,279)
0.99636A = $51,092
J = $30,000 + $5,128
A = $51,279
J = $35,128
Reciprocal Cost Allocation
Admin.
Janitorial
FabricatingAssemblyFinishing
Direct overhead cost............................. $50,000.00)
$30,000.00)$40,000.00$50,000.00$25,000.00
Administrative cost allocation...............
(51,279.00)
5,127.90)15,383.7020,511.60 10,255.80
Janitorial cost allocation........................ 1,277.38)
(35,128.00)6,386.9117,883.359,580.36
Total overhead costs............................. $
0)
$
0)$61,770.61$88,394.95$44,836.16
Direct labor hours.................................
5,0006,0002,000
Departmental overhead rate.................
$12.35$14.73$
22.42