Question

PART A. The following data apply to questions 1-4

Billy Stone, Inc., budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers:

Used By
Supplied By	Building & Grounds	Computer Services	Signs	Mailers
Buildings & Grounds		0.2	0.6	0.2
Computer Services	0.15		0.3	0.55
The actual results for the time period were as follows:
Used By
Supplied By	Building & Grounds	Computer Services	Signs	Mailers
Buildings & Grounds		0.1	0.6	0.3
Computer Services	0.25		0.35	0.4

Actual cost data for each department are:

	Fixed	Variable
Buildings & Grounds	$ 50,000	$90,000
F Computer Services	$100,000	$21,000

Total fixed costs allocated from Buildings & Grounds to the Signs Department, using the preferred allocation basis, by the direct allocation method are

a.   $37,500.                     

b.   $33,333.                                       

c.   $30,000.                     

d.   $25,000.

e.     none of the above

Total variable costs allocated from Computer Services and Building & Grounds to Mailers Department, using the preferred allocation basis, by the step-down allocation method (begin with Building & Grounds) are

a.   $8,400.                                         

b.   $12,000.                                       

c.   $16,000.                     

d.   $25,235.

e.     none of the above

The equation to determine the total variable costs of Computer Services using the preferred allocation basis, for the reciprocal allocation method is

CS = $21,000 + 0.25 B&G.                                        

CS = $21,000 + 0.20 B&G.    

CS = $21,000 + 0.15 B&G.

CS = $21,000 + 0.10 B&G.

                                                                                 

Based on the reciprocal allocation method, determine the total variable costs allocated to SIGNS using the preferred allocation basis.

PLEASE SHOW WORK

Answer 1

Answers :

Total Fixed Cost allocated from B&G deptt to Sign by Direct Allocation Method :

Actual Fixed Cost of B&G X Budgeted B&G to Signs / Budgeted B&G to (SIgns + Mailers)

= $ 50,000 X 0.6/ (0.6+0.2) = $ 50,000 X 0.6/0.8 = $ 37,500

Hence, option (a) is correct answer.

Total Variable Costs allocated from CS and B&G to Mailers Deptt - Step by Step Allocation Method :

Step 1: B&G to CS

Actual Variable B&G Cost X Actual B&G to CS

= $90,000 X 0.10 = $ 9,000

Total CS Variable Cost : $ 21,000 + $ 9,000 = $ 30,000

Step 2: CS to Mailers

Total Variable CS Cost X Actual CS to M / Actual CS to (M+S)

= $ 30,000 X 0.40/ (0.40+0.35) = $ 30,000 X 0.40/0.75 = $ 16,000

Hence, option (c) is the correct answer

Equation to determine Total Variable Cost of CS - Reciprocal Allocation Method :

CS = $ 21,000 + 0.10 B&G where B&G = $ 90,000 + 0.25CS

= $ 21,000 + 0.10(90,000 + 0.25CS)

= $ 30,769

Total Variable Cost of CS allocated to Signs using Reciprocal Allocation Method :

$ 30,769 X 0.35/(0.35 + 0.40) = $ 14359

Thanks !