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Exam 27: Service Department Charges

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Question 1

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Macumber Corporation has two operating divisions--an Atlantic Division and a Pacific Division.The company's Logistics Department services both divisions.The variable costs of the Logistics Department are budgeted at $36 per shipment.The Logistics Department's fixed costs are budgeted at $234,000 for the year.The fixed costs of the Logistics Department are determined based on peak-period demand. How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?

A) $198,000
B) $109,800
C) $118,800
D) $96,800

E) A) and C)
F) B) and D)

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Question 2

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Which of the following companies is following a policy with respect to the costs of service departments that is not recommended?

A) To charge operating departments with the depreciation of forklifts used at its central warehouse, Shalimar Electronics charges predetermined lump-sum amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of their inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its service departments to its operating departments.

E) B) and C)
F) A) and B)

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Question 3

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(Appendix 11B) Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow: The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760. -For performance evaluation purposes,how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?

Since sales dollars represents "ability to pay," it is superior to most other bases used for allocating or charging service department costs.

Nealon Corporation's Maintenance Department provides services to the company's two operating divisions--the Paints Division and the Stains Division.The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments.The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak-period.Data appear below: Required: a.Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year. b.How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

All charges for services computed using budgeted rather than actual rates should be removed from an operating department's performance report.

(Appendix 11B) Azotea Corporation has two operating divisions--a Consumer Division and a Commercial Division. The company's Order Fulfillment Department provides services to both divisions. The variable costs of the Order Fulfillment Department are budgeted at $56 per order. The Order Fulfillment Department's fixed costs are budgeted at $233,700 for the year. The fixed costs of the Order Fulfillment Department are budgeted based on the peak-period orders. At the end of the year, actual Order Fulfillment Department variable costs totaled $237,390 and fixed costs totaled $239,140. The Consumer Division had a total of 1,240 orders and the Commercial Division had a total of 2,860 orders for the year. -How much Order Fulfillment Department cost should be allocated to the Commercial Division at the end of the year?

Whenever possible,service department costs should be separated into fixed and variable costs and charged separately to operating departments.

(Appendix 11B) Nafth Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly Departments. Costs of the equipment Services Department are charged to the Fabrication and Assembly Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow: For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the year. Actual variable maintenance costs for the year totaled $255,000. -For performance evaluation purposes,how much of the $255,000 of actual variable maintenance cost should be charged to the Assembly Department at the end of the year just ended?

The medical services department of Fischer Company budgeted $25 of variable medical expenses per employee for May,based on 2,000 employees in operating departments.During May an average of 1,980 employees were employed in operating departments.Actual variable medical expenses totaled $50,700 for the month.How much variable medical expenses should be charged to operating departments at the end of May for performance evaluation purposes?

Smurnov Company has a purchasing department that provides services to two factories located in Austin and the other in Belmont.Budgeted costs for the purchasing department consist of $91,000 per year of fixed costs and $7 per purchase order for variable costs.The level of budgeted fixed costs is determined by the peak-period requirements.The Austin factory requires 3/7 of the peak-period capacity and the Belmont factory requires 4/7. During the year,2,700 purchase orders were processed for the Austin factory and 3,900 purchase orders for the Belmont factory. Required: Compute the amount of purchasing department cost that should be charged to each factory for the year.

Oaks Company maintains a cafeteria for its employees.For June,variable food costs were budgeted at $48 per employee based on a budgeted level of 1,000 employees in other departments.During the month,an average of 1,100 employees worked in other departments.The cafeteria's total food costs for the month came to $57,750.How much food cost should be charged to the other departments at the end of the month for performance evaluation purposes?

Tabarez Corporation's Maintenance Department provides services to the company's two operating divisions--the Paints Division and the Stains Division.The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments.The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period.Data appear below: For performance evaluation purposes,how much Maintenance Department cost should be charged to the Stains Division at the end of the year?

(Appendix 11B) Mannerman Products, Inc., operates an electric power plant which provides all electrical power for the company's Machining and Fabrication departments. Information on kilowatt-hours (kwh) of power usage in these departments for May follow: The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000 and are determined by peak-period requirements. Actual fixed costs for the month totaled $65,000. The Machining Department requires 60% of the peak-period capacity and the Fabrication Department requires 40%. -For performance evaluation purposes,how much of the electric power plant's fixed costs should be charged to the Fabrication department at the end of the month for purposes of evaluating performance?

(Appendix 11B) Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow: The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760. -How much Housekeeping Department cost should be charged to Rehabilitation at the end of September?

Gabritz,Inc.has a maintenance department that provides services to the company's two operating departments.The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department.Last year,budgeted variable maintenance costs were $7.50 per maintenance hour and actual variable maintenance costs were $7.80 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below: Required: a.Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b.Compute the amount of actual variable maintenance department cost that should NOT have been charged to the operating departments at the end of the year for performance evaluation purposes.

(Appendix 11B) Wollan Corporation has two operating divisions--an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $44 per shipment. The Logistics Department's fixed costs are budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division had a total of 3,000 shipments for the year. -How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year?

(Appendix 11B) Wollan Corporation has two operating divisions--an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $44 per shipment. The Logistics Department's fixed costs are budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division had a total of 3,000 shipments for the year. -How much Logistics Department cost should be allocated to the West Division at the end of the year?

(Appendix 11B) Mannerman Products, Inc., operates an electric power plant which provides all electrical power for the company's Machining and Fabrication departments. Information on kilowatt-hours (kwh) of power usage in these departments for May follow: The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000 and are determined by peak-period requirements. Actual fixed costs for the month totaled $65,000. The Machining Department requires 60% of the peak-period capacity and the Fabrication Department requires 40%. -How much (if any) of the electric power plant's actual fixed costs of $65,000 should not be charged to the other departments?

The long-run average or peak period needs of operating departments would be the most suitable base for allocating: