Question #1
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Support Departments
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Operating Department
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Accounting
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Payroll
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Marketing
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Sales
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Budgeted costs incurred before any allocations
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83,000
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240,000
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800,000
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420,000
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Support supplied by Accounting
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Budgeted Employees
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---
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20
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40
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30
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Support supplied by Payroll
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Budget processing time
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300 minutes
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---
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1,900 minutes
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1,500 minutes
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The number of employees is used to allocate Accounting costs. Processing time is used to allocate Payroll costs.
1. Allocate the support departments' costs to the operating departments using the direct method.
2. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method.
Question #2
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Ingredient A
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Ingredient B
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Joint Costs
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Joint costs (costs of processing the product to split-off point)
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$350,000
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Separable cost of processing beyond the split-off point
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$426,000
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$106,500
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Beginning inventory (boxes)
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0
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0
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Production and Sales (boxes)
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14,200
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7,100
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Ending Inventory (boxes)
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0
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0
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Selling price per box
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$ 50
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$ 25
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Allocate the $350,000 Joint Costs using the Net Realizable Value method.
Question #3
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Division A
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Division B
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Total Assets
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$30,000,000
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$25,000,000
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Current Liabilities
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$ 5,000,000
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$ 4,200,000
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Operating Income
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$ 2,200,000
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$ 2,400,000
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Required Rate of Return
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15%
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15%
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Using operating income as a measure of income, and using Total Assets as a measure of investment:
1. Calculate Return on Investment for each division
2. Calculate Residual Income for each division