QUESTIONS

Question 1.

Kaplan, Inc. has two departments, Small and Large. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

Small Large

Square footage 6,000 18,000

Number of employees 1,120 480

Sales $400,000 $2,000,000

a. If total advertising expense is $300,000 and it is allocated on the basis of sales, How much is the amount allocated to each department.

b. If total payroll processing costs are $96,000 and they are allocated on the basis of number of employees, How much is the amount allocated to each department.

c. If total rent expense is $120,000 and it is allocated on the basis of square footage, How much is the amount allocated to each department.

Question 2.

Tamara's Battery Company has two service department's Personnel and Maintenance. The Maintenance Department's costs of $160,000 are allocated on the basis of standard hours used. The Personnel Department's costs of $40,000 are allocated based on the number of employees. Costs of Department A and B are $80,000 and $120,000, respectively.

Data on standard service hours and number of employees are as follows:

Maintenance Personnel Production Departments

Standard service Department Department A B

Hours used 400 400 480 320

Number of Employees 20 20 80 240

Allocate service department costs to production departments using direct method.

Question 3.

Healthy Drink Company processes direct materials up to the split off point, where two products, Classic and Light, are obtained. The following information was collected for the month of July:

Classic Light

Production: 1,500 liters 500 liters

Sales: $17.00 per liter $20.00 per liter

Cost of purchasing of direct materials and processing it up to the split off point to yield a total of 2,000 liters of good products was $15,000.

Classic may be processed further to yield Superfine for an additional processing cost of $2,500. But this additional process normally results in loss of %10 of the amounts entering the process. Superfine is sold for $20.00 per liter.

Light may be processed further to yield Soft for an additional processing cost of $1,500. But this additional process normally results in loss of %20 of the amounts entering the process. Soft is sold for $30.00 per liter.

There were no beginning and ending inventory balances.

a. Allocate the joint costs of $15,000 to Superfine and Soft drinks. using either estimated net-realizable method or constant gross margin method.

b. Do you prefer to sell Classic at splioff point or do the further processes and sell as Superfine drink?

c. Do you prefer to sell Light at splioff point or do the further processes and sell as Soft drink?

Question 4.

Troy Company processes 15,000 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $4 per gallon, and Product Y, the main product, sells for $50 per gallon. The following information is for August:

Beginning Ending

Production Sales Inventory Inventory

Product X: 4,375 4,000 0 375

Product Y: 10,000 9,500 0 500

The manufacturing costs totaled $150,000. (Sales byproduct method is used)

a. How much is cost of the ending inventory under sale by-product method (method B)?

b. What is the gross margin for Rossy Bottling under sale by-product method (method B)?