# Jiambalvo 4 Edition Chapter 6

Topics: Costs, Variable cost, Fixed cost Pages: 6 (1062 words) Published: April 14, 2012
Jiambalvo 4edition
Chapter 6
Exercise 6.5

A. Suggest allocation bases to be used in allocating the service department costs to the two subsidiaries. | |Service Departments |Allocations | |1 |Human Resources ( hires employees and manages benefits) |# of employees | |2 |Duplicating (performs copy services) |# of copies made | |3 |Janitorial (provides routine cleaning services) |floor space | |4 |Accounting (provides accounting services) |direct labor hours | |5 |Graphic Design (designs forms) |# of forms designed | |6 |Food Services (provides free breakfast and lunch to employees) |# of employees |

B. Food services are used by employees in the human resources department. Would a share of food service costs be allocated to human resources under the direct method of allocation?

No because direct method of allocations uses direct labor hours. The production departments would receive the entire allocation and the Human Resources area would not be allocated the Food Services cost.

EXERCISE 6.8

Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs.

A. Allocate service department costs to production departments. | |Service Departments |Production Departments | | |S1 |S2 |S3 |P1 |P2 | |# of employees |80 |60 |30 |200 |300 | |Budgeted Costs |\$4,000,000 |\$3,000,000 |\$2,000,000 | | | |% | | | |40%( 200/200+300) |60% (300/200+300) | |Costs allocated | | | |\$3,600,000 (40% x 9,000,000) |\$5,400,000 (60% x 9,000,000 |

B. Calculate the total service department cost allocated to each production department. | |Production Departments | | |P1 |P2 | |# of employees |200 |300 | |Budgeted Costs | | | |% |40% |60% | |Costs allocated |\$3,600,000 |\$5,400,000 |

EXERCISE 6.9
Custom Metal Works received an offer from a big- box retail company to purchase 3,000 metal outdoor tables for \$200 each. Custom Metal Works accountants determine that the following costs apply to the tables: Direct material: \$100

Direct labor:  45
Total:   \$ 215
(Note: Of the \$ 70 of overhead, \$14 is variable and \$56 relates to fixed costs. The \$56 of fixed overhead is allocated as \$ 1.25 per direct labor dollar)

A. What will be the real effect on profit if the order is accepted? |  |Manufacture...