CHAPTER9:RESPONSIBILITYACCOUNTING

MultipleChoice
c1.Goalcongruenceexistswhen
a.thegoalsofthecompanyharmonizewitheachother.
b.thecompany'smanagersarepursuingtheirowngoalseffectively.
c.thecompany'smanagersarepursuingthegoalsofthecompany.
d.alloftheabovearetrue.
c2.Goalcongruenceismostlikelytoresultwhen
a.reportstomanagersincludeallcosts.
b.managers'behaviorisaffectedbythecriteriausedtojudgetheirperformances.
c.performanceevaluationcriteriaencouragebehaviorinthecompany'sbestinterestsaswellasinthe
manager'sbestinterests.
d.amanagerknowsthecriteriausedtojudgehisorherperformance.
d3.Inresponsibilityaccountingthemostrelevantclassificationofcostsis
a.fixedandvariable.
b.incrementalandnonincremental.
c.discretionaryandcommitted.
d.controllableandnoncontrollable.
c4.Whichofthefollowingiscriticallyimportantforaresponsibilityaccountingsystemtobeeffective?
a.Eachemployeeshouldreceiveaseparateperformancereport.
b.Servicedepartmentcostsshouldbeallocatedtotheoperatingdepartmentsthatusetheservice.
c.Eachmanagershouldknowthecriteriausedforevaluatinghisorherperformance.
d.Thedetailsontheperformancereportsforindividualmanagersshouldadduptothetotalsonthe
reporttotheirsupervisor.
c5.WhichofthefollowingitemsisLEASTlikelytoappearontheperformancereportofthemanagerofa
productline?
a.Variablemanufacturingcostsforproductsintheline.
b.Sellingexpensesfortheline.
c.Ashareofcompanywideadvertising.
d.Revenuesfromtheline.
b6.Thesequencethatreflectsincreasingbreadthofresponsibilityis
a.costcenter,investmentcenter,profitcenter.
b.costcenter,profitcenter,investmentcenter.
c.profitcenter,costcenter,investmentcenter.
d.investmentcenter,costcenter,profitcenter.
a7.Thecriteriausedforevaluatingperformance
a.shouldbedesignedtohelpachievegoalcongruence.
b.canbeusedonlywithprofitcentersandinvestmentcenters.
c.shouldbeusedtocomparepastperformancewithcurrentperformance.
d.motivatepeopletoworkinthecompany'sbestinterests.
b8.Abalancedscorecardapproachtoperformancemeasurement
a.canonlybeusedinprofitorinvestmentcenters.
b.balancesfinancialmeasureswithnonfinancialmeasures.
c.usesonlyqualitativedatatoevaluateperformance.
d.usesbudgeteddataratherthanhistoricaldata.
b9.Ifacompanyhasafavorablesalesvolumevariance,its
a.salespricevarianceisalsofavorable.
b.totalcontributionmarginmightbelessthanplanned.
c.totalcontributionmarginwillbemorethanplanned.
d.incomewillbepositive.

c10.Transferprices
a.reduceemployeeturnover.
b.arenecessaryforinvestmentcenters.
c.shouldencouragethekindsofbehaviorthatupperlevelmanagementwants.
d.arenotusedfordepartmentswithhighamountsoffixedcosts.
b11.Atransferpriceis
a.anaccountingdevicetoturnprofitcentersintoinvestmentcenters.
b.thepricechargedbyonesegmentofthecompanyforgoodsorservicesprovidedtoanothersegment.
c.onlyusefulinasegmentthatdealswithoutsidersaswellaswithothersegmentsofthesamecompany.
d.theamountchargedbyacostcenterforaserviceperformedforaprofitcenter.

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c12.Thecostallocationpolicymostlikelytoencourageuseofaserviceisbasedon
a.budgetedtotalcostsoftheservicedepartment.
b.actualtotalcostsoftheservicedepartment.
c.budgetedvariablecostsfortheservicedepartment.
d.actualvariablecostsfortheservicedepartment.
c13.Whichofthefollowingstatementsistrue?
a.Acompanychangesitstotalincomewhenitchangesthebasesusedtoallocateindirectcosts.
b.Acompanyshouldselectanallocationbasissoastoraiseorlowerreportedincomeongivenproducts.
c.Acompany'stotalincomewillremainunchangednomatterhowindirectcostsareallocated.
d.Costsshouldbeallocatedonan"abilitytobear"basis.
a14.Ifacompanyallocatescostsofaservicedepartmenttootherdepartments,itshould
a.considerthelikelyeffectsoftheallocationsontheuseoftheservices.
b.usethemethodthatbestreflectstherelativesizesofthedepartments.
c.turntheservicedepartmentintoaninvestmentcenter.
d.allocateonlythefixedcostsoftheservicedepartment.
a15.Ifacomputerdepartmentdoesworkforotherdepartments,chargingaflatpriceperhour,thecomputer
departmentis
a.anartificialprofitcenter.
b.acostcenter.
c.aninvestmentcenter.
d.noneoftheabove.
a16.TheWORSTmethodofallocatingservicedepartmentcostsis
a.toallocatetotalactualcostsbasedonactualuseoftheservice.
b.toallocatetotalbudgetedcostsbasedonlongtermexpecteduseoftheservice.
c.toallocatetotalbudgetedcostsbasedonactualuseoftheservice.
d.noneoftheabove,becausealltheaboveareequallyundesirable.
b17.Asageneralrule,thebesttransferpricetousetotransferthecostsofaservicecentertoan
operatingdepartmentis
a.thepricechargedbyanoutsidecompanyforthesameservice.
b.thepricethatencouragesgoalcongruence.
c.onethatisbasedonbudgetedvariablecost.
d.onethatisbasedonbudgetedtotalcost.
b18.WhichofthefollowingcostsisLEASTlikelytoappearontheperformancereportfortheforemanofa
productiondepartment?
a.Wagesofdirectlaborers.
b.Rentonmachineryusedindepartment.
c.Repairstomachineryusedindepartment.
d.Costofmaterialsused.
d19.ABCCompanyoperatesafactorythatmakescomponentsforotherABCfactoriestoassemble.Thefactory
couldbetreatedas
a.acostcenter.
b.anartificialprofitcenter.
c.aninvestmentcenter.
d.anyoftheabove.
d20.Forreportstofollowtheprinciplesofresponsibilityaccounting,whichofthefollowingmustbetrue?
a.Eachsegmentoftheentityisanartificialprofitcenter.
b.Thecompanyisdecentralized.
c.Thecompanyusestransferprices.
d.Thereportsshowcontrollablecostsseparatelyfromnoncontrollablecosts.
c21.Theeffectiveuseofresponsibilityaccountingrequiresthatperformancereportsforcostcenters
a.showonlyvariablecosts.
b.showafairshareofallocatedcosts.
c.distinguishbetweencontrollableandnoncontrollablecosts.
d.showafairshareofrevenuesattributabletothecenter.
b22.Criteriaforevaluatingperformanceshouldbecarefullyselectedbecause
a.theymustbeapprovedbytheIRS.
b.amanager'sbehaviorcanbeaffectedbythecriteriausedtojudgehisorherperformance.
c.managersmayfindoutwhattheyare.
d.stockholdersinquireaboutthematannualmeetings.
d23.WhichofthefollowingisNOTagoodreasonforallocatingindirectcoststooperatingdepartments?
a.Toremindmanagersoftheneedtocoverindirectcosts.

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b.Sothatoperatingmanagerswillencourageservicedepartmentmanagerstokeepcostsdown.
c.Toencouragemanagerstouseserviceswisely.
d.Todeterminethetruecostsofoperatingdepartments.
b24.Anartificialprofitcenter
a.hasnoinvestment.
b.doesnotprovideitsgoodsorservicesoutsidetheentity.
c.cannotcontrolitscosts.
d.couldnotbeoperatedasacostcenter.
c25.Aresponsibilitycenteris
a.anydepartment.
b.anymanager.
c.anyareaofactivityforwhichamanagerisresponsible.
d.onlylargedepartments.
a26.ABC'sactualsellingpricewaslessthanplannedandactualunitvolumemorethanplanned.Therefore,
a.ABChadafavorablesalesvolumevariance.
b.ABC'stotalcontributionmarginwasmorethanplanned.
c.ABChadafavorablesalespricevariance.
d.ABC'sactualtotalsalesequaledplannedtotalsales.
b27.Theterm"dualrates"refersto
a.allocatingcoststoseveraloperatingdepartments.
b.allocatingfixedcostsbasedoncapacityrequirementsandvariablecostsbasedonuse.
c.allocatingbothactualcostsandbudgetedcosts.
d.usingthebudgetedratetoallocatesomecosts,theactualratetoallocateothers.
a28.Whichofthefollowingmethodsofallocatingthecostsofservicedepartmentsprovidesthebroadest
recognitionofdepartmentsserved?
a.Reciprocalallocation.
b.Stepdownallocation.
c.Directallocation.
d.Arbitraryallocation.
d29.Whichofthefollowingisagoodreasonforallocatingindirectcoststooperatingdepartments?
a.Thecompanycouldlosemoneyiftheoperatingdepartmentsdonotpayfortheservicestheyuse.
b.Toremindmanagersoftheneedtocoverindirectcosts.
c.Toencouragemanagerstousemoreservices.
d.Todeterminethetruecostsofoperatingdepartments.
b30.Whenamanagertakesanactionthatbenefitshisorherresponsibilitycenter,butnotthecompanyasa
whole,
a.itisanoncontrollableaction.
b.thereisalackofgoalcongruence.
c.thecentermustbeanartificialprofitcenter.
d.themanagershouldbefired.
d31.WhichofthefollowingisagoodreasonforNOTallocatingindirectcoststooperatingdepartments?
a.Thecompanysavesmoneyiftheoperatingdepartmentsdonotpayfortheservicestheyuse.
b.Toremindmanagersoftheneedtocoverindirectcosts.
c.Toencouragemanagerstousemoreservices.
d.Thecostsarenotcontrollablebytheoperatingdepartments.
d32.WhichofthefollowingisagoodreasonforNOTallocatingindirectcoststooperatingdepartments?
a.Toremindmanagersthatrevenuesmustcoverindirectcosts.
b.Torecognizethatoperatingdepartmentsbenefitfromtheservices.
c.Toencouragemanagerstouseserviceswisely.
d.Becauseallocatingthemmightpromptoperatingmanagerstousenonincrementalcostsinmaking
decisions.
b33.Aprofitcenterisaresponsibilitycenter
a.thatsellsitsoutputoutsidethecompany.
b.whosemanagerisresponsibleforbothrevenuesandcosts.
c.thatprovidesaservicetootherresponsibilitycenters.
d.withinaninvestmentcenter.
d34.Aninvestmentcenteris
a.largerthanacostcenter.
b.largerthanaprofitcenter.
c.seldomtheresponsibilityofasinglemanager.
d.nottruthfullycharacterizedinanyoftheabovestatements.
a35.Themanageriallevelatwhichaparticularcostiscontrollable

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a.variesfromcompanytocompany.
b.dependsonwhetherthecostisfixedorvariable.
c.dependsonwhetherthecostisdirectorindirect.
d.isirrelevanttothepreparationofperformancereports.
d36.Ifatallpossible,amanager'sperformancereportshould
a.considertheresultsthatthemanagercancontrol.
b.consideronlytheresultsthatthemanagercancontrol.
c.notbeinfluencedbytheresultsofdecisionsmadebyothermanagers.
d.reflectalloftheabovecharacteristics.
d37.Comparingbudgetedandactualamountsisimportantinevaluatingtheperformanceof
a.themanagerofacostcenter.
b.themanagerofaprofitcenter.
c.themanagerofaninvestmentcenter.
d.anymanager.
c38.Direct,stepdown,andreciprocalarenamesfor
a.theallocationmethodsmostlikelytoproducegoalcongruence.
b.transferpricingmethods.
c.methodsforallocatingcostsofservicedepartmentstooperatingdepartments.
d.alternativeorganizationalstructures.
b39.CascadeCompanyhadthefollowingresultsinJune.

PlannedActual

Sales$80,000$78,900
Variablecosts50,00048,500

Contributionmargin$30,000$30,400
==============
Plannedsaleswere10,000units;actualsaleswere9,700units.Thesalespricevarianceis
a.$1,100U.
b.$1,000F.
c.$900U.
d.$400F.
c40.CascadeCompanyhadthefollowingresultsinJune.

PlannedActual

Sales$80,000$78,900
Variablecosts50,00048,500

Contributionmargin$30,000$30,400
==============
Plannedsaleswere10,000units,actualsaleswere9,700units.Thesalesvolumevarianceis
a.$1,100U.
b.$1,000F.
c.$900U.
d.$400F.
b41.

CertaintyStoreshasthreestoresandoneservicecenter.Thepercentageofservicesusedinthecurrent
yearareStoreX,35%;StoreY,40%;andStoreZ,25%.Theservicecentercostswerebudgetedat$160,000
fixedand$240,000variable.Actualfixedcostswere$140,000andactualvariablecostswere$270,000.
Actualservicecentercostsareallocatedtothestoresbasedonactualusageoftheservicecenter.
ServicecentercostsallocatedtoStoreYare
a.$64,000.
b.$164,000.
c.$410,000.
d.someothernumber.

c42.

CertaintyStoreshasthreestoresandoneservicecenter.Thepercentageofservicesusedinthecurrent
yearareStoreX,35%;StoreY,40%;andStoreZ,25%.Theservicecentercostswerebudgetedat$350,000
fixedand$250,000variable.Actualfixedcostswere$370,000andactualvariablecostswere$280,000.
Budgetedservicecentercostsareallocatedtothestoresbasedonactualusageoftheservicecenter.
ServicecentercostsallocatedtoStoreYare
a.$140,000.
b.$148,000.
c.$240,000.

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d.$260,000.
c43.

WabashaCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.

ABXY

Directcosts$240$400
ServicesperformedbyDept.A40%40%20%
ServicesperformedbyDept.B.20%70%10%
Wabashausesthedirectmethodtoallocateservicedepartmentcosts.Theservicedepartmentcost
allocatedtoDepartmentYis
a.$88.
b.$96.
c.$130.
d.$240.
c44.

WabashaCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.

ABXY

Directcosts$250$400
ServicesperformedbyDept.A40%40%20%
ServicesperformedbyDept.B.20%70%10%
Wabashausesthestepdownmethodtoallocateservicedepartmentcosts.DepartmentAcostsareallocated
first.TheservicedepartmentcostallocatedtoDepartmentYis
a.$90.
b.$97.50.
c.$112.50.
d.$130.
c45.

WabashaCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.

ABXY

Directcosts$150$300
ServicesperformedbyDept.A40%40%20%
ServicesperformedbyDept.B.20%70%10%
Wabashausesthereciprocalmethodtoallocateservicedepartmentcosts.Theservicedepartmentcost
allocatedtoDepartmentYis
a.$60.
b.$75.
c.$85.
d.$135.
d46.

OlsonStoreshasthreestoresandoneservicecenter.Thepercentageofservicesusedinthecurrentyear
areStoreA,40%;StoreB,25%;andStoreC,45%.TheexpectedlongtermbudgetedusagesareStoreA,
30%;StoreB,30%;andStoreC,40%.Theservicecentercostswerebudgetedat$450,000fixedand
$550,000variable.Actualfixedcostswere$430,000andactualvariablecostswere$570,000.Olson
allocatesthebudgetedvariablecostsofthecentralpurchasingunitbasedonactualuseoftheunit's
services,andallocatesbudgetedfixedcostsbasedonexpectedlongtermuseoftheunit'sservices.
ServicecentercostsallocatedtoStoreAare
a.$135,000.
b.$220,000.
c.$300,000.
d.$355,000.

b47.

OlsonStoreshasthreestoresandoneservicecenter.Thepercentageofservicesusedinthecurrentyear
areStoreA,45%;StoreB,35%;andStoreC,20%.TheexpectedlongtermbudgetedusagesareStoreA,
30%;StoreB,40%;andStoreC,30%.Theservicecentercostswerebudgetedat$450,000fixedand
$550,000variable.Actualfixedcostswere$430,000andactualvariablecostswere$570,000.Olson
allocatesthebudgetedvariablecostsofthecentralpurchasingunitbasedonactualuseoftheunit's
services,andallocatesbudgetedfixedcostsbasedonexpectedlongtermuseoftheunit'sservices.

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ServicecentercostsallocatedtoStoreBare
a.$350,000.
b.$372,500.
c.$400,000.
d.$550,000.
d48.

BasinCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.
ABXY

Directcosts$200$400
ServicesperformedbyDept.A20%40%40%
ServicesperformedbyDept.B.30%60%10%
Basinusesthedirectmethodtoallocateservicedepartmentcosts.Theservicedepartmentcostallocated
toDepartmentXis
a.$280.
b.$300.
c.$320.
d.$443.
a49.

BasinCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.
ABXY

Directcosts$200$400
ServicesperformedbyDept.A20%40%40%
ServicesperformedbyDept.B.30%60%10%
Basinusesthestepdownmethodtoallocateservicedepartmentcosts.DepartmentAcostsareallocated
first.TheservicedepartmentcostallocatedtoDepartmentXis
a.$457.
b.$443.
c.$320.
d.$300.
c50.

BasinCo.hastwoservicedepartments(AandB)andtwoproducingdepartments(XandY).Dataprovided
areasfollows:

ServiceDepts.OperatingDepts.
ABXY

Directcosts$200$400
ServicesperformedbyDept.A20%40%40%
ServicesperformedbyDept.B.30%60%10%
Basinusesthereciprocalmethodtoallocateservicedepartmentcosts.Theservicedepartmentcost
allocatedtoDepartmentXis
a.$300.
b.$340.
c.$417.
d.$468.
TrueFalse
F1.Allresponsibilitycentersareeithernaturalorartificial.
F2.Thesalesvolumevarianceisthedifferencebetweenactualandplannedunitsalesmultipliedbytheactual
contributionmarginperunit.
F3.Theprincipleofcontrollabilityislessimportanttotheinternalreportingforacentralizedcompany
thanforadecentralizedone.
F4.Allocatedcostsarelessimportanttotheinternalreportingforacentralizedcompanythanfora
decentralizedcompany.
F5.Achievinggoalcongruenceislessimportantinacentralizedorganizationthaninadecentralizedone.
T6.Itisnotalwayspossibletoseparatethevariableandfixedcomponentsofactualcosts.

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F7.Aprofitcenterwillalwayshavesalestooutsidecustomers.
T8.Thesalespricevarianceisthedifferencebetweentheactualsellingpriceandtheplannedsellingprice
multipliedbyactualunitssold.
T9.Thedirectmethodofallocatingservicedepartmentcostsignoresalloftheinteractionsbetweenservice
departments.
F10.Thereciprocalmethodofallocatingservicedepartmentcostsconsidersonlytheusagebytheproducing
departmentsindeterminingtheallocations.
Problems
1. ThefollowingdataareforBillingsStores,whichhastwostoresandoneservicecenter.
HelenaButte

Percentageofservicesusedincurrentyear20%80%
Expectedlongtermuseofservices30%70%
Budgetedcentralpurchasingcostswere$225,000fixedand$125,000variable.Actualfixedcostswere
$240,000andactualvariablecostswere$115,000.Themanagerswishtoallocatetheactualcentral
purchasingcoststothestoresbasedonactualuseofthecentralpurchasingservice.
a.

b.

ComputetheallocationtotheHelenastore.
ComputetheallocationtotheButtestore.

SOLUTION:
a.

ToHelena:$71,000[20%x($240,000+$115,000)]

b.

ToButte:$284,000[80%x($240,000+$115,000)]

2. ThefollowingdataareforBillingsStores,whichhastwostoresandoneservicecenter.
HelenaButte

Percentageofservicesusedincurrentyear20%80%
Expectedlongtermuseofservices30%70%
Budgetedcentralpurchasingcostswere$225,000fixedand$125,000variable.Actualfixedcostswere
$240,000andactualvariablecostswere$115,000.Thecompanywishestoallocatethebudgetedvariable
costsofthecentralpurchasingunitbasedonactualuseoftheunit'sservicesandtoallocatebudgeted
fixedcostsbasedonexpectedlongtermuseoftheunit'sservices.
a.

b.

ComputethetotalcostallocatedtotheHelenastorefortheservicesofthecentralpurchasingunit.
ComputethetotalcostallocatedtotheButtestorefortheservicesofthecentralpurchasingunit.

SOLUTION:
a.

ToHelena:$92,500($125,000x20%+$225,000x30%)

b.

ToButte:$257,500($125,000x80%+$225,000x70%)

3. FollowingaredataaboutAlphabetCo.'stwoservicedepartmentsandtwooperatingdepartments.
ServiceDepts.OperatingDepts.

ABXY

Directcosts$200$500$1,500$2,000
ServicesperformedbyDept.A20%40%40%
ServicesperformedbyDept.B.10%90%
a.

Alphabetallocatescostsofitsservicedepartmentsusingthedirectmethodofallocation.Findthetotal
costthatwillbeallocatedtoDept.X.

b.

Alphabetallocatesthecostsofitsservicedepartmentsusingthestepdownmethod,beginningwithDept.
A.FindthetotalamountofcostthatwillbeallocatedtoDept.X.

SOLUTION:
a.

AllocatedtoX:$600[($200x40/(40+40)]+[$500x(90/90)]

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b. AllocatedtoX:$620
ABXY

A'sdirectcost$200
A'scostallocated(200)$40$80$80
B'sdirectcost500

Totalforallocating$540
B'scostsallocated(540)5400

AllocatedtoX$620
AllocatedtoY$80
4. FollowingaredataaboutAlphabetCo.'stwoservicedepartmentsandtwooperatingdepartments.
ServiceDepts.OperatingDepts.

ABXY

Directcosts$400$1,000$3,000$4,000
ServicesperformedbyDept.A20%40%40%
ServicesperformedbyDept.B.10%90%
Alphabetallocatescostsofitsservicedepartmentsusingthereciprocalmethodofallocation.Findthe
totalcostthatwillbeallocatedtoDept.X.
SOLUTION:
AllocatedtoX:$1,195.92
A=$400+.1BA=510.20
B=$1,000+.2AB=1,102.04
ABXY

Directcosts$400.00$1,000.00
A'scostallocated(510.20)102.04$204.08$204.08
B'scostsallocated110.20(1,102.04)991.840

AllocatedtoX$1,195.92
AllocatedtoY$204.08
5. ThefollowingdataareforLexingtonStores,whichhastwostoresandoneservicecenter.
ConcordGraham

Percentageofservicesusedincurrentyear40%60%
Expectedlongtermuseofservices30%70%
Budgetedcentralpurchasingcostswere$100,000fixedand$75,000variable.Actualfixedcostswere
$140,000andactualvariablecostswere$105,000.Themanagerswishtoallocatetheactualcentral
purchasingcoststothestoresbasedonactualuseofthecentralpurchasingservice.
a.

b.

ComputetheallocationtotheConcordstore.
ComputetheallocationtotheGrahamstore.

SOLUTION:
a.

ToConcord:$98,000[40%x($140,000+$105,000)]

b.

ToGraham:$147,000[60%x($140,000+$105,000)]

6. ThefollowingdataareforLexingtonStores,whichhastwostoresandoneservicecenter.
ConcordGraham

Percentageofservicesusedincurrentyear40%60%
Expectedlongtermuseofservices30%70%
Budgetedcentralpurchasingcostswere$100,000fixedand$75,000variable.Actualfixedcostswere
$140,000andactualvariablecostswere$105,000.Thecompanywishestoallocatethebudgetedvariable
costsofthecentralpurchasingunitbasedonactualuseoftheunit'sservicesandtoallocatebudgeted
fixedcostsbasedonexpectedlongtermuseoftheunit'sservices.
a.

ComputethetotalcostallocatedtotheConcordstorefortheservicesofthecentralpurchasingunit.

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b.

ComputethetotalcostallocatedtotheGrahamstorefortheservicesofthecentralpurchasingunit.

SOLUTION:
a.

ToConcord:$60,000($75,000x40%+$100,000x30%)

b.

ToGraham:$115,000($75,000x60%+$100,000x70%)

7. FollowingaredataaboutHamiltonCo.'stwoservicedepartmentsandtwooperatingdepartments.
ServiceDepts.OperatingDepts.

ABXY

Directcosts$400$600$2,000$3,000
ServicesperformedbyDept.A30%30%40%
ServicesperformedbyDept.B.20%70%10%
a.

Hamiltonallocatescostsofitsservicedepartmentsusingthedirectmethodofallocation.Findthetotal
costthatwillbeallocatedtoeachoftheoperatingdepartments.

b.

Hamiltonallocatesthecostsofitsservicedepartmentsusingthestepdownmethod,beginningwithDept.
A.Findthetotalamountofcostthatwillbeallocatedtoeachoftheoperatingdepartments.

c.

Hamiltonallocatescostsofitsservicedepartmentsusingthereciprocalmethodofallocation.Findthe
totalcostthatwillbeallocatedtoeachoftheoperatingdepartments.

SOLUTION:
a.

AllocatedtoX:$696.43{$400x[30/(30+40)]+$600x[70/(70+10)]}
AllocatedtoY:$303.57{$400x[40/(30+40)]+$600x[10/(70+10)]}

b. AllocatedtoX:$750.00,AllocatedtoY:$250.00
ABXY

A'sdirectcost$400
A'scostallocated(400)$120$120.00$160.00
B'sdirectcost600

Totalforallocating$720
B'scostsallocated(720)630.0090.00

AllocatedtoX$750.00
AllocatedtoY$250.00
c.

AllocatedtoX:$702.13,AllocatedtoY:$297.87
A=$400+.2BA=553.19
B=$600+.3AB=765.96

ABXY

Directcosts$400.00$600.00
A'scostallocated(553.19)165.96$165.96$221.27
B'scostsallocated153.19(765.96)536.1776.60

AllocatedtoX$702.13
AllocatedtoY$297.87
8.FollowingaredataaboutHawleyCo.'stwoservicedepartmentsandthreeoperatingdepartments.
ServiceDepts.OperatingDepts.

ABXYZ

Directcosts$400$600
ServicesperformedbyDept.A30%40%20%10%
ServicesperformedbyDept.B.40%20%20%20%
Hawleyallocatescostsofitsservicedepartmentsusingthereciprocalmethodofallocation.Findthetotal
coststhatwillbeallocatedtoeachoftheoperatingdepartments.
SOLUTION:
Allocatedtox:$454.55,allocatedtoY:$309.09,AllocatedtoZ:$236.36

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A=$400+.4BA=727.27
B=$600+.3AB=818.18

ABXYZ

Directcosts$400.00$600.00
A'scostallocated(727.27)218.18$290.91$145.45$72.72
B'scostsallocated327.27(818.18)163.64163.64163.64

AllocatedtoX$454.55
AllocatedtoY$309.09
AllocatedtoZ$236.36
9. FollowingaredataaboutAugustaCo.'sthreeservicedepartmentsandtwooperatingdepartments.
ServiceDepts.OperatingDepts.

ABCXY

Directcosts$150$300$350
ServicesperformedbyDept.A20%30%40%10%
ServicesperformedbyDept.B.10%20%50%20%
ServicesperformedbyDept.C30%40%15%15%
a.

Augustaallocatescostsofitsservicedepartmentsusingthedirectmethodofallocation.Findthetotal
costthatwillbeallocatedtoDept.X.

b.

Augustaallocatesthecostsofitsservicedepartmentsusingthestepdownmethod,beginningwithDept.A
followedbyDept.B.FindthetotalamountofcostthatwillbeallocatedtoDept.X.

SOLUTION:
a.

AllocatedtoX:$509.29{$150x[40/(40+10)]+$300x[50/(50+20)]+$350x[15/(15+15)]}

b. AllocatedtoX:$477.50
ABCXY

A'sdirectcost$150
A'scostallocated(150)$30$45.00$60.00$15.00
B'sdirectcost300

Totalforallocating$330
B'scostsallocated(330)73.33183.3473.33
C'sdirectcost350.00

Totalforallocating$468.33
C'scostsallocated(468.33)234.16234.16

AllocatedtoX$477.50
AllocatedtoY$322.50
10.OsseoCompanyhadthefollowingresultsinJune.
PlannedActual

Sales$160,000$162,500
Variablecostsat$5perunit100,000102,500

Contributionmargin$60,000$60,000
================
Plannedsaleswere20,000units,actualsaleswere20,500units.
a.Findthesalespricevariance.IndicateForU
b.Findthesalesvolumevariance.IndicateForU
SOLUTION:
a.$1,500U{20,500x[($162,500/20,500)$8]}

b.$1,500F[$3x(20,50020,000)]

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