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7/22/2019 Hilton 9E Global Edition Solutions Manual Chapter17
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CHAPTER 17
Allocation of Support Activity Costs and JointCosts
ANSWERS TO REVIEW QUESTIONS
17-1 A service department is a unit in an organization that is not involved directly inproducing the organizations goods or services. However, a service department doesprovide a service that enables the organizations production process to take place.roduction departments, on the other hand, are units that are directly involved inproducing the organizations goods and services. An e!ample o" a servicedepartment in a bank would be the computer department or the human resources
department. An e!ample o" a #production$ department in a bank would be theconsumer loan department.
17-% &he term reciprocal services re"ers to the situation in which two or more servicedepartments provide services to each other.
17-' (a) *nder the direct method o" service department cost allocation, all servicedepartment costs are allocated directly to the production departments, and noneo" these costs are allocated to other service departments.
(b) *nder the step-down method, a se+uence is "irst established "or allocation o"
service department costs. &hen the costs incurred in the "irst service departmentin the se+uence are allocated among all other departments that use that servicedepartments services, including other service departments. &he methodproceeds in a similar "ashion through the se+uence o" service departments.
(c) *nder the reciprocal-services method, a system o" simultaneous e+uations isestablished to re"lect the reciprocal provision o" services among servicedepartments. &hen all o" the service departments costs are allocated among allo" the departments that use the various service departments output o" services.&he reciprocal-services method o" service department cost allocation is the onlymethod that "ully accounts "or the reciprocal provision o" services among
departments.
17- &he "irst department in the se+uence under the step-down method is the servicedepartment that serves the largest number o" other service departments. &he seconddepartment in the se+uence is the service department that serves the second-largestnumber o" service departments, and so "orth. &he se+uence among tied servicedepartments usually is an arbitrary choice.
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17- &he dual-allocation approach improves the resulting cost allocations becausevariable costs are allocated in accordance with short-run usage, and "i!ed costs areallocated in accordance with long-run service re+uirements.
17- A potential behavioral problem that can result "rom the dual approach to service
department cost allocation is that service department managers may have adisincentive to provide correct predictions "or their departments long-run servicedepartment needs.
17-7 /udgeted service department costs should be allocated rather than actual servicedepartment costs. Allocating actual costs would reduce the incentive "or cost controlin the service departments.
17-0 *nder two-stage allocation with departmental overhead rates, costs "irst aredistributed to departments then they are allocated "rom service departments toproduction departments.2inally, they are assigned "rom production departmentsto
products or services. Departmentsplay a key role as intermediate cost ob3ects underthis approach. 4n an activity-based costing (A/5) system, on the other hand, the keyrole is played by activities,not departments. 2irst, the costs o" various activitiesareassigned to activity-cost pools then these costs are assigned to products orservices. &he breakdown o" costs by activity in an A/5 system is much "iner then abreakdown by departments. &he A/5 approach generally will provide a much moreaccurate cost "or each o" the organizations products or services.
17-6 (a) oint-production process8 A production process in which the processing o" acommon input results in two or more outputs called 3oint products.
(b) oint costs8 &he costs incurred in a 3oint production process be"ore the 3ointproducts become identi"iable as separate products.
(c) oint products8 &he output o" a 3oint production process.
(d) 9plit-o"" point8 &he point in a 3oint production process at which the 3oint productsbecome identi"iable as separate products.
(e) 9eparable costs8 5osts incurred to process 3oint products "urther a"ter they passthe split-o"" point in a 3oint production process.
(") /y-product8 A 3oint product with very little value relative to the other 3ointproducts.
17-1: *nder the physical-units method o" 3oint cost allocation, 3oint production costs areallocated among the 3oint products in proportion to a physical characteristic o" thoseproducts, such as weight or volume.
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17-11 *nder the relative-sales-value method o" 3oint cost allocation, 3oint production costsare allocated to the 3oint products in proportion to their sales value at the split-o""point.
17-1% &he net realizable value o" a 3oint product is e+ual to its ultimate sales value minus
the separable costs incurred between the split-o"" point and the products "inal "orm.*nder the net-realizable-value method o" 3oint cost allocation, 3oint production costsare allocated among the 3oint products in proportion to their net realizable values.
17-1' oint cost allocations are use"ul "or product-costing purposes. roduct costing isuse"ul "or income determination, "or inventory valuation, "or third-partyreimbursement situations, and various other purposes.
17-1 &he managerial accountant generally should be care"ul not to use 3oint costallocations "or making decisions.
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SO"UTIONS TO E#ERCISES
;4?*&;9)
1. 5ost allocation using direct method8
Academic @epartments *sing 9ervicesiberal Arts 9ciences
rovider o" 9ervice5ost to /eAllocated roportion Amount roportion Amount
ibraryBBBBBBB. C7:,::: ('D) C:,::: (%D) C'::,:::5omputing 9ervicesB '%:,::: ('D0) 1%:,::: (D0) %::,:::&otalBBBBBBBB. C1,:7:,::: C7:,::: C::,:::
Erand total C1,:7:,:::%. 4n the electronic version o" the solutions manual, press the 5&= key and click on
the "ollowing link8 /uild a 9preadsheet 17-1.!ls
;4?*&;9)
1. 5ost allocation using step-down method8
9ervice @epartments
Academic @epartments
*sing 9ervices5omputing
9ervices ibraryiberal
Arts 9ciences5osts prior to allocationB C'%:,::: C7:,:::Allocation o" 5omputing
9ervice costsFBBBBB. C'%:,::: ,::: (%D1:) C 6,:::('D1:) C1:,:::(D1:)Allocation o" ibrary
costsBBBBBBBBB. C01,::: 00,:: ('D) '%,::(%D)&otal costs allocated to
each departmentBBBB C0,:: C0,::
&otal cost allocated toacademic departmentsB. C1,:7:,:::
FAllocated "irst because 5omputing 9ervices provides service to the ibrary, but not viceversa.
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;4?*&;9)
oint5ost
ointroducts
uantity at9plit-G"" oint
=elativeroportion
Allocationo"
oint 5ost
Gat bran 1%,::: kilograms .: C',:::FC:,:::
=olled oats 0,::: kilograms .: %,:::I&otal %:,::: kilograms C:,:::
FC',::: J C:,::: .:IC%,::: J C:,::: .:
;4?*&;9)
oint5ost
ointroducts
uantity at9plit-G""
9alesrice
9ales Kalue at9plit-G"" oint
=elativeroportion
Allocationo"
oint 5ostGat bran 1%,::: kg C1.: C10,::: .%6F C%,7:I
C:,:::=olled oats 0,::: kg '.:: %,::: .71F ',%:FF
&otal C%,::: C:,:::
F=ounded
IC%,7: J C:,::: .%6FFC',%: J C:,::: .71
;4?*&;9)
1. @ecision analysis8
4ncremental revenue per kilogram8
9ales price o" powdered health drink enhancer ...................... C.:
9ales price o" rolled oats ..........................................................
'.::4ncremental revenue .................................................................. C1.:4ncremental processing cost per kilogram .............................. .:4ncremental revenue less incremental cost ............................. C 1.::
&he rolled oats should be processed "urther into the health drink enhancer.
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SO"UTIONS TO )RO*"E+S
=G/;> 17-% (: >4?*&;9)
1. @irect method8
roduction @epartments>achining Assembly
rovider o" 9ervice5ost to /eAllocated roportion Amount roportion Amount
H=BBBBBBBBB C10:,::: (D6) C0:,::: (D6) C1::,:::>aintenanceBBBB. %':,::: ('D7) 1:7,'''F (:D7) 1%%,7F5A@BBBBBBBB.
':,:::(D:) %%,:: (1D:) 07,::
&otalBBBBBBBB C7:,::: C6,0'' C'1:,17Erand total C7:,:::
F=ounded
%. 9e+uence "or step-down method8
1st8 H= (serves % other service departments)
%nd8 >aintenance (serves 1 other service department)'rd8 5A@ (serves no other service departments)
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=G/;> 17-% (5G?&4?*;@)
'. 9tep-down method8
9ervice @epartments roduction @epartmentsH= >aintenance 5A@ >olding Assembly
5osts prior to
allocationBBBBB. C10:,::: C%':,::: C':,:::Allocation o"
H= @epartmentcostsBBBBBBB. C10:,::: 6,::: (D1::) 6,:::(D1::) C7%,:::(:D1::) C6:,:::(:D1::)
Allocation o">aintenance@epartment costsB. C%'6,::: 1,6'0 F(D0:) 1:,'F('D0:) 116,::(:D0:)
Allocation o" 5A@@epartment costsB. C'7',6'0 %0:, F(D:) 6',0 F(1D:)
&otal costallocated to eachdepartmentBBBB. C7,:17 C':%,60
&otal cost allocated to production departments C7:,::%FFF=oundedFFC% overallocation due to rounding
. 4n the electronic version o" the solutions manual, press the 5&= key and click on the "ollowing link8 /uild a 9preadsheet17-%.!ls
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=G/;> 17-% (7: >4?*&;9)
1. @irect method combined with dual allocation8
(a) Kariable costs8
roduction @epartments>achining Assembly
rovider o" 9ervice5ost to /eAllocated roportionF Amount roportionF Amount
H=BBBBBBBBB. C :,::: (D6) C %%,%%%I (D6) C %7,770I
>aintenanceBBBB.. 0:,::: ('D7) '7,'''I (:D7) %,7I5A@BBBBBBBB..
:,:::(D:) '7,:: (1D:) 1%,::
&otal variable costBB C10:,::: C 67,:II C
0%,6IIF9hort-run usage proportions ("rom preceding problem).I=oundedIIC67,: M C0%,6 J C10:,:::
(b) 2i!ed costs8
roduction @epartments>achining Assembly
rovider o" 9ervice5ost to /eAllocated roportionF Amount roportionF Amount
H=BBBBBBBBB. C1':,::: ('D0) C',%6I (:D0) C7,71I
>aintenanceBBBB.. 1:,::: (0D7%) 1::,::: (%D7%) :,:::5A@BBBBBBBB..
'::,:::(0D:) %:,::: (1%D:) :,:::
&otal "i!ed costBBB.C0:,:::
C'6',%6 FFC10,71FF
Fong-run proportions ("rom this problem)I=oundedFF5heck8 C'6',%6 M C10,71 J C0:,:::
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=G/;> 17-% (5G?&4?*;@)
(c) &otal costs allocated8
>achining AssemblyKariable costs ............................................................................ C 67,: C 0%,62i!ed costs ................................................................................. '6',%6 10,71&otal costs .................................................................................. C6:,0 C%6,1
Erand total .................................................................................. C7:,:::
%. 9tep-down method combined with dual allocation8
As in the preceding problem, the se+uence o" allocation is H=, >aintenance, and 5A@,respectively.
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=G/;> 17-% (5G?&4?*;@)
(a) Kariable costs8
9ervice @epartments roduction @epartmentsH= >aintenance 5A@ >olding Assembly
5osts prior to
allocationBBBBB C:,::: C0:,::: C:,:::Allocation o"
H= @epartmentcostsBBBBBBB C:,::: %,:: (D1::)F %,::(D1::) C%:,:::(:D1::) C%,:::(:D1::)
Allocation o">aintenance@epartment costsB C0%,:: ,1 I(D0:) ',:6I('D0:) 1,%:(:D0:)
Allocation o" 5A@@epartment costsB C7, ',%% (D:) 1,1 (1D:)
&otal variable costallocated to eachdepartmentBBBB C66,''FF C0:,FF
F9hort-run usage proportions are used ("rom preceding problem).I=ounded.FFC66,'' M C0:, J C10:,:::
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=G/;> 17-% (5G?&4?*;@)
(b) 2i!ed costs8
9ervice @epartments roduction @epartmentsH= >aintenance 5A@ >olding Assembly
5osts prior to
allocationBBBBB C1':,::: C1:,::: C'::,:::Allocation o"
H= @epartmentcostsBBBBBBB C1':,::: ,:: (D1::)F 1',:::(1:D1::) C,::('D1::) C,:::(:D1::)
Allocation o">aintenance@epartment costsB C1,:: 1,: (0D0:) 6',6::(0D0:) ,6:(%D0:)
Allocation o" 5A@@epartment costsB C'%0,: %%,6%: (0D:) ,7': (1%D:)
&otal "i!ed costallocated to eachdepartmentBBBB C:%,'%:I C177,0:I
Fong-run usage proportions are used ("rom this problem).I5heck8 C:%,'%: M C177,0: J C0:,:::
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=G/;> 17-% (5G?&4?*;@)
(c) &otal costs allocated8
>achining AssemblyKariable costs ...................................................................... C 66,'' C 0:,2i!ed costs ........................................................................... :%,'%: 177,0:&otal costs ............................................................................ C:1, C%0,'
Erand total ............................................................................ C7:,:::
=G/;> 17-% (: >4?*&;9)
1. @irect method8
roduction @epartment;tching 2inishing
rovider o" 9ervice5ost to /eAllocated roportion Amount roportion Amount
>aintenanceBBBBB.. C 0,::: (1D6) C ,''' (0D6) C %,75omputingBBBBBB. %:,::: (7D0) %10,7: (1D0) '1,%:&otal service department costs allocated ...................... C%%,:0' C 7',617Gverhead costs traceable to
production departments ................................................%::,::: '%:,:::&otal overhead cost ......................................................... C%,:0' C'6',617
@irect-labor hours (@H)(%: %,:::) ................................................................... :,:::(0: %,:::) ................................................................... 1:,:::
Gverhead rate per hour(total overhead N @H) .................................................. C1:.:%F C%.%F
5heck on allocation procedure89ervice department costs allocated to ;tching ................................................ C%%,:0'9ervice department costs allocated to 2inishing ............................................. 7',617&otal costs to be allocated (C0,::: M C%:,:::) .............................................. C%60,:::
F=ounded
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=G/;> 17-% (5G?&4?*;@)
%. 9tep-down method8
9ervice @epartments roduction @epartments5omputing >aintenance ;tching 2inishing
5osts prior to allocationBB. C%:,::: C0,:::Allocation o" 5omputing
@epartment costsBBBBB %:,::: :,::: (%D1:) C17,:::(7D1:) C %,:::(1D1:)Allocation o" >aintenance
@epartment costsBBBBB 60,:::
1:,006 (1D6) 07,111 (0D6)&otal service department cost allocated ............................... C10,006 C11%,111Gverhead costs traceable to
production departments ...................................................... %::,::: '%:,:::&otal overhead cost ................................................................ C'0,006 C'%,111
@irect-labor hours (@H)(%: %,:::) .......................................................................... :,:::(0: %,:::) .......................................................................... 1:,:::Gverhead rate per hour
(total overhead N @H) ......................................................... C6.7F C%.7:F
5heck on allocation procedure89ervice department costs allocated to ;tching ............................................. C10,0069ervice department costs allocated to 2inishing ..........................................11%,111&otal costs to be allocated (C0,::: M C%:,:::) ........................................... C%60,:::F=ounded
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=G/;> 17-%7 (': >4?*&;9)
1. hysical-units method o" allocation8
oint5ost
ointroducts
uantity at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C'::,::: >9/ ...........:,::: ............... :O ..................... C1%:,::: 5/ ............6:,::: ............... :O ..................... 10:,::: &otal .......... 1:,:::&he 3oint cost allocated to 5/ is C10:,:::.
%. =elative-sales-value method o" allocation8
oint5ost
ointroducts
9ales Kalue at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C'::,::: >9/ ........... C1%:,::: ............. %O ..................... C 7,::: 5/ ............':,::: ............. 7O ..................... %%,::: &otal .......... C0:,:::&he 3oint cost allocated to >9/ is C7,:::.
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=G/;> 17-%7 (5G?&4?*;@)
'. ?et-realizable-value method o" allocation8
oint5ost
ointroducts
9alesKalue o"
2inal roductAdditional 5osto" rocessing
?et=ealizable
Kalue=elative
roportionAllocation o"
oint 5ostC'::,::: >9/ . . . C'::,:::F. .. .. .. C1::,::: ........ C%::,::: %O........ ... C 7,:::
5/ ....0::,:::I.......%::,::: ........ ::,::: 7O..... ...... %%,:::&otal ... C0::,:::
FC :,:::IC1: (6:,::: L 1:,:::)
&he unit cost o" 5/ is computed as "ollows8
oint cost allocation .................................................................. C%%,:::
Additional processing costs ..................................................... %::,:::&otal cost .................................................................................... C%,:::
uantity (good units) ................................................................. 0:,:::
5ost per unit (C%,::: N 0:,:::).............................................. C.'1(rounded)
. 9ales value i" coated (:,::: C) ........................................... C'::,:::Additional cost o" coating ......................................................... 1::,:::4ncremental contribution i" coated ........................................... C%::,:::
9ales value i" uncoated (:,::: C%) ...................................... 1%:,:::@ecline in contribution i" uncoated .......................................... C 0:,:::
&he contribution would decrease by C0:,::: i" the mine support braces are notprocessed "urther.
. &he allocation o" 3oint costs is irrelevant to the decision about coating the minesupport braces. &he decision should be based entirely on in"ormation pertaining to
events "rom the split-o"" point "orward. &hus, the 3oint cost allocation results werenot used in making this production decision.
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=G/;> 17-%0 (: >4?*&;9)
1. lantwide overhead rates8
@epartments (numbers in thousands)>olding 5omponent Assembly &otal
>anu"acturing departments8Kariable overhead ...................... C ',:: C1:,::: C1,:: C':,:::2i!ed overhead ........................... 17,:: ,%:: ,1:: %6,0::&otal manu"acturing
department overhead .......... C%1,::: C1,%:: C%%,:: C6,0::9ervice departments8ower .......................................... 10,::>aintenance ............................... ,:::
&otal estimated overhead...... C0%,%::
;stimated direct-labor hours (@H)8>olding ....................................... ::5omponent ................................. %,:::Assembly .................................... 1,::&otal estimated
direct-labor hours ................ ,:::lantwide overhead rate J
@AHestimated
overheadestimated
J:::,
%::,0%C
J C%:. per direct-labor hour
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=G/;> 17-%0 (5G?&4?*;@)
%. @epartmental overhead rates8
@epartments (numbers in thousands)9ervice >anu"acturing
ower >aintenance >olding 5omponent Assembly@epartmental overhead
costs ................................... C10,:: C ,::: C%1,::: C1,%:: C%%,::a. Allocation o" mainten-
ance costs(direct method)
roportions8 6:D1%,%D1%, 1:D1% ............ (,:::) %,00: 0:: '%:
b. Allocation o" powercosts (dual, directmethod)
2i!ed costs(C1%,:::)8
roportions8::D1:::, ':D1:::,1:D1::: ...................(1%,:::) ,::: ,%:: 1,0:: Kariable costs(C,::)8
roportions8
':D0::, '%:D0::,1%:D0:: (,::) %,00: %,: 6:
&otal allocateddepartmentaloverhead costs ....... C : C : C'%,7: C%',7: C%,0:
c. 5ost driver ....................... 07>H
%,::: @H
1,:: @H
=ate (departmental overheadN units o" cost driver) ....................................... C'7.
per >H
C11.00per
@H
C17.1%per
@H
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=G/;> 17-%0 (5G?&4?*;@)
'. >emorandum
@ate8 &oday
&o8 resident, &ravelcra"t 5ompany
2rom8 4.>. 9tudent
9ub3ect8 *se o" departmental overhead rates
&ravelcra"t should use departmental rates to assign overhead to its products. &hecriterion "or choosing an allocation base is a close relationship between costincurrence and use o" the base. &his relationship e!ists with di""erent bases indi""erent departments, necessitating the use o" departmental rates. &he companys
production departments are dissimilar in that the >olding @epartment is machine-intensive while the other two departments are labor-intensive.
=G/;> 17-%6 (: >4?*&;9)
1. ?et-realizable-value method o" allocation8
oint
5ostper =un
ointroducts
9ales Kalue o"2inal roductF
Additional 5osto" rocessing
?et
=ealizableKalue
=elativeroportionI
Allocation o"oint 5ost
H&-' ....... C%,0::,:::........C07,::: ....... C1,6%,::: .....0.1O ..... C 7,1::C1,::,::: 9&- ....... %,1::,:::........01,::: .......1,%0,::: .....'%.1:O ..... 6,::
=- .. .. .. .. . 0:,:::... .. .. .:,::: ....... 76:,::: .....16.7O ..... %7,::&otal C,:::,::: C1,7::,:::
F9ales price +uantity producedI?et realizable value N C,:::,:::, which is the sum o" the net realizable values o" the three 3oint
products, rounded
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=G/;> 17-%6 (5G?&4?*;@)
%. Gctober production cost per liter8
roduct H&-' 9&- =-
oint cost allocation ................................. C 7,1:: C 6,:: C%7,::Additional processing costs .................... 07,::: 01,::: :,:::&otal cost C1,0,1:: C1,%,:: C'',::uantity produced (liters) ........................ 7::,::: ':,::: 17:,:::5ost per liter (rounded) ............................ C%.%1 C'.% C1.60
4nventory valuation8
roduct H&-'
9&- =-Gctober 1 inventory (liters) ........................ 10,::: %,::: ',:::Gctober production (liters) ....................... 7::,::: ':,::: 17:,:::uantity available (liters) ........................... 710,::: :%,::: 17',:::Gctober sales (liters) .................................. :,::: '%,::: 1:,:::Gctober '1 inventory (liters) ...................... 0,::: 77,::: %',:::5ost per liter ......................................... C%.%1 C'.% C1.60
Gctober '1 inventory (dollars) .................. C1:,%0: C%70,7: C ,:'. /iondi 4ndustries should sell 9&- at the split-o"" point. &he incremental revenue o"
sales beyond the split-o"" point is less than the incremental cost o" "urtherprocessing.
er liter sales value beyond the split-o"" point ........................... C.::er liter sales value at the split-o"" point ..................................... '.0:4ncremental sales value ................................................................ C%.%:ess8 Additional processing costs per liter
(C01,::: N ':,::: liters) .......................................................... %.'' (rounded)er liter gain (loss) o" "urther processing ................................... C (.1')
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=G/;> 17-': (' >4?*&;9)
1. oint cost allocations using the relative-sales-value method8
Gmega8 3oint cost allocation J o""-splitatvaluesalestotal o""-splitatvaluesalessGmegaP 3oint cost
J
:::,1::C
:::,1-CC:,::: J C6,:::
Qappa8 3oint cost allocation J total 3oint cost L @eltas allocationL Gmegas allocation
J C:,::: L C',::: L C6,::: J C1,:::
9ummary o" 3oint cost allocations8
@elta .................................................................................................... C',:::(given)Qappa .................................................................................................. 1,:::Gmega ................................................................................................. 6,:::&otal .................................................................................................... C:,:::
%. @eltas 3oint cost allocation J
o""-splitatvaluesalestotal
o""-splitatvaluesaless@eltaP3oint cost
C',::: J
:::,1::C
XC:,:::
X J C',:::
:::,.:C
:::,1::C
X J C:,:::
@eltas sales value at split-o"" J C:,:::
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=G/;> 17-': (5G?&4?*;@)
'. oint cost allocation using the net-realizable-value method8
oint5ost
ointroducts
9ales Kalue o"2inal roduct
9eparable5ost o"
rocessing
?et=ealizable
Kalue=elative
roportionAllocation o"
oint 5ost
C:,::: GmegaQappa@elta C 7:,::: C 7,::: C ',::: .' C'7,0::%,::: ,::: %:,::: .%: 1%,:::%:,::: ',::: 17,::: .17 1:,%::
&otal C11,::: C1,::: C1::,::: C:,:::
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=G/;> 17-'1 (: >4?*&;9)
1. oint costs arise "rom the simultaneous processing or manu"acturing o" two or moreproducts made "rom the same process. &hese 3oint costs are not traceable to anysingle product.
&he split-o"" point is the stage in the manu"acturing process at which 3oint productscan be identi"ied as individual units. 2uture costs are then accounted "or separately.
%. &he dollar value o" the "inished-goods inventories on ?ovember ': "or K
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=G/;> 17-'1 (5G?&4?*;@)
4nventory values on ?ovember ':8
K
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=G/;> 17-'% ( >4?*&;9)
1. hysical-units method8
oint
5ostper =un
ointroducts
uantity at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C%:,::: 5ompod ......... 1%:,::: liters............. :O................... C1:,::: *ltrasene ...... .0:,::: liters.......... .. :O................... 1::,::: &otal %::,::: liters C%:,:::
&he 3oint cost allocated to 5ompod is C1:,:::.
%. =elative-sales-value method8
oint5ost
per =unoint
roducts9ales Kalue at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C%:,::: 5ompod ......... C%:,::: ............. 0O ..................... C1%:,::: *ltrasene ...... .%:,::: ............. %O ..................... 1':,::: &otal C::,::: C%:,:::
&he 3oint cost allocated to *ltrasene is C1':,:::.
'. ?ow there are additional processing costs beyond the split-o"" point.
a. Additional processing costs have no e""ect on the physical-units method o"allocation. &he 3oint cost allocated to *ltrasene is C1::,:::, as calculated inre+uirement (1).
b. ?et-realizable-value method8
oint5ost
per =unoint
roducts9ales Kalue o"2inal roduct
9eparable 5osto" rocessing
?et=ealizable
Kalue=elative
roportion
Allocation o"oint 5ost
C%:,:::5ompod .... C%:,:::......... C1%,::: .......... C%%0,::: 7O........... C1%,::*ltrasene...%:,:::.........00,::: .......... 17%,::: 'O..... .. .. .. 1:7,:: &otal C::,::: C%:,:::
&he 3oint cost allocated to 5ompod is C1%,::.
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=G/;> 17-'% (5G?&4?*;@)
. 4ncremental revenue per liter "rom "urther processinginto 5ompodalene (C%.: L C%.::) ..................................................................... C.:
4ncremental cost per liter "rom "urther processing8
rocessing cost ................................................................................. C.:9ales commission (C%.: 1:O) ..................................................... .% .4ncremental loss per liter "rom "urther processing
into 5ompodalene ............................................................................... C(.:)
5onclusion8 @o not process 5ompod into 5ompodalene. &he "irm should sell5ompod. (?ote that the C.1: per liter separable processing cost to obtain5ompod isirrelevant. &he +uestion is what to do with the 5ompod afterit has been obtained.&he relevant data are the incremental costs and bene"its associated with turning5ompod into 5ompodalene.)
. &he director o" research, 5harles a>ar+ue, acted improperly in asking the assistantcontroller to alter her analysis in "avor o" producing 5ompodalene. 4" he believes the"urther processing o" 5ompod is in >ontpelier 5ie.s best interests, he should try toback up his claim with some pro3ected cost reductions and the potential impact onthe companys market. He could present his own estimates to Anne->arie Euillotin,or directly to the managers responsible "or making the "inal decision.
Euillotin should not alter her analysis to support the production o" 5ompodalene. 4n theabsence o" any "urther in"ormation, she should recommend against the "urther
processing o" 5ompod. 9everal ethical standards "or management accountants(listed in 5hapter 1) are relevant, including the "ollowing8
Competence
rovide decision support in"ormation and recommendations that are accurate,
clear, concise, and timely.
Objectivity
5ommunicate in"ormation "airly and ob3ectively.
@isclose "ully all relevant in"ormation that could reasonably be e!pected to
in"luence an intended users understanding o" the reports, analyses, andrecommendations.
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=G/;> 17-'% (5G?&4?*;@)
. 4t is pre"erable to sell 5ompod than to sell 5ompodalene, as the solution tore+uirement () showed. ?evertheless, it is pre"erable to sell 5ompodalene than to
sell nothing, since each liter o" 5ompodalene makes a positive contribution towardcovering the 3oint production cost, "i!ed costs, and pro"it.
4ncremental revenue "rom sale o" a liter o"5ompodalene (i" the alternative is no sale) ..................................................... C%.:
4ncremental cost (i" the alternative is to stopproduction at the split-o"" point)89eparable processing to produce 5ompod a"ter
the split-o"" point .................................................................................. C.1:2urther processing cost to turn 5ompod into 5ompodalene ..............:9ales commission .................................................................................. .%&otal ........................................................................................................ .7
5ontribution to the 3oint production cost, "i!ed costs,and pro"it ................................................................................................... C1.0
=G/;> 17-'' (': >4?*&;9)
1. =eciprocal-services method8
;+uations8 M J 0,::: M .%C
CJ %:,::: M .1M
Rhere Mdenotes the total cost o" the >aintenance @epartment
Cdenotes the total cost o" the 5omputing @epartment
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=G/;> 17-'' (5G?&4?*;@)
9olution o" e+uations8
MJ 0,::: M .% (%:,::: M .1M)
MJ 0,::: M :,::: M .:%M
.60 MJ 60,:::
MJ 1::,:::
CJ %:,::: M .1 (1::,:::)
CJ %:,:::
Allocation8
9ervice @epartments roduction @epartments>aintenance 5omputing ;tching 2inishing
&raceable costs ....................... C 0,::: C%:,:::Allocation o" >aintenance
@epartment costs ................. (1::,:::) 1:,:::(.1) C 1:,:::(.1) C 0:,:::(.0)Allocation o" 5omputing
@epartment costs ................. %,:::(.%) (%:,:::) 10%,::: (.7) %,::: (.1)&otal service department costs allocated ............................. C16%,::: C1:,:::Gverhead costs traceable to production departments ........ %::,::: '%:,:::&otal overhead cost ................................................................ C'6%,::: C%,:::
@irect-labor hours (@H)(%: %,:::) ......................................................................... :,:::(0: %,:::) ......................................................................... 1:,:::Gverhead rate per hour (total overhead N @H) ................... C6.0: C%.'5heck on allocation procedure89ervice department costs allocated to ;tching ............... C16%,:::9ervice department costs allocated to 2inishing ............ 1:,:::
&otal ..................................................................................... C%60,:::
%. &he direct allocation method ignores any service rendered by one servicedepartment to another. Allocation o" each service departments total cost is madedirectly to the production departments. &he step-down method recognizes oneservice departments usage o" services, but ignores the others usage o" services.&he reciprocal services allocation method recognizes all service department supportto other service departments through the use o" simultaneous e+uations. &his
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allocation procedure should lead to more accurate results that would be o" greatervalue to management.
=G/;> 17-' ( >4?*&;9)
1. Kariable costs8
?otation8 Rdenotes the total variable cost o" atient =ecordsHdenotes the total variable cost o" Human =esources
Adenotes the total variable cost o" Administration and Accounting
;+uations8 RJ %,::: M .:H (1)HJ 1,::: M .:A (%)
AJ 7,:: M .%:H (')
&hese e+uations are based on the variablecosts and short-rnusage proportions
given in ;!hibit 17-%.
9olution o" e+uations8 9ubstitute "rom e+uation (') into e+uation (%).
H J 1,::: M .:(7,:: M .%: H).66H J 17,'7
H J 17,1 (rounded)9ubstitute the value o" Hinto e+uations (1) and (').
R J %,::: M .:(17,1)R J %,070 (rounded)
A J 7,:: M .%:(17,1)A J 1,:1: (rounded)
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=G/;> 17-' (5G?&4?*;@)
Allocation o" variable costs8
9ervice @epartments@irect-atient-5are
@epartmentsHuman
=esources
(H=)
Administrationand
Accounting
atient
=ecords Grthopedics 4nternal >edicine&raceable costs ........................ C1,::: C7,:: C%,:::Allocation o" H=
@epartment costs ................... (17,1) ',1:(.%:) 070F(.:) C ,'00F(.%) C 0,77F(.:)Allocation o" Administration
and Accounting@epartment costs ................... %,1F(.:) (1,:1:) -:-(:) 17,0F(.') ':,:(.:)
Allocation o" atient=ecords @epartment costs .... (:) (:) (%,070) 7,' F(.':) 17,1 F(.7:)
&otal variable cost allocatedto each direct-patient-care
department ................................ C%6,7:I C,767I
F=oundedIC%6,7: M C,767 J C0,:% di""ers "rom the total variable cost (C0,::) because o" cumulative rounding error.
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=G/;> 17-' (5G?&4?*;@)
%. 2i!ed costs8
?otation8 Rdenotes the total "i!ed cost o" atient =ecordsHdenotes the total "i!ed cost o" Human =esources
Adenotes the total "i!ed cost o" Administration and Accounting
;+uations8 RJ 7,::: M .1:H ()HJ ,::: M .1:A ()
AJ 1%,:: M .1:H ()
&hese e+uations are based on the "i!ed costs given in ;!hibit 17-% and the lon!-rnusage proportions given in ;!hibit 17-.
9olution o" e+uations8 9ubstitute "rom e+uation () into e+uation ().
H J ,::: M .1:(1%,:: M .1: H).66H J 6,%:
H J 6,00 (rounded)9ubstitute the value o" Hinto e+uations () and ().
RJ 7,::: M .1:(6,00)R J 01,60 (rounded)
A J 1%,:: M .1:(6,00)A J 10,0 (rounded)
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=G/;> 17-' (5G?&4?*;@)
Allocation o" "i!ed costs8
9ervice @epartments@irect-atient-5are
@epartmentsHuman
=esources
(H=)
Administrationand
Accounting
atient
=ecords Grthopedics 4nternal >edicine&raceable costs ........................ C,::: C1%,:: C7,:::Allocation o" H=
@epartment costs ................... (6,00) ,60F(.1:) ,60F(.1:) C11,67:F(.%:) C',6:6F(.:)Allocation o" Administration
and Accounting@epartment costs ................... 1,06F(.1:) (10,0) -:-(:) ,010F(.) ,010F(.)
Allocation o" atient=ecords @epartment costs .... -:-(:) -:-(:) (01,60) '%,76 (.:) 6,161 (.:)
&otal "i!ed cost allocatedto each direct-patient-care
department ......................... C111,0%=
C11,610I
F=oundedIC111,0% M C11,610 J C%',::
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=G/;> 17-' (5G?&4?*;@)
&otal costs allocated8
Grthopedics4nternal
>edicine
Kariable costs ...................................................................... C %6,7: C ,7672i!ed costs ........................................................................... 111,0% 11,610&otal costs ............................................................................ C11,%07 C%:0,71
Erand total ............................................................................ C':,::%F
F@i""ers "rom the total cost to be allocated (C':,:::) due to cumulative roundingerror in the allocation o" the variable costs.
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SO"UTIONS TO CASES
5A9; 17-' (: >4?*&;9)
1. roduct output in kilograms8
roduct roportion&otal
Qilograms
Qilogramsost in
rocessing
?etQilograms
9licesBBB.. .' 6,:: S 6,::5rushedBB. .%0 7,:: S 7,::uiceBBBB .%7 7%,6:: ,::F 7,::*Animal "eedB .1: %7,::: S %7,:::&otalBBBB. %7:,::: ,:: %,::
F;vaporation loss is 0O o" the remaining good output. etXdenote the remaining+uantity o" 3uice8
7%,6:: L .:0X J X
7%,6:: J 1.:0X
7,:: J X
5heck8 evaporation loss J (0O)(7,::) J ,::
%. ?et realizable value at the split-o"" point8
roductQilograms o"roduction
9ellingrice
9ales=evenue
9eparable5ost
?et =ealizable Kalue
Amount ercent9licesBB 6,:: .: C ,7:: C ,7:: C %,::: %O5rushedB 7,:: . 1,0: 1:,0: '1,::: '1OuiceBB. 7,:: .': %:,%: ',%: 17,::: 17O&otalBB.. C110,': C10,': C1::,::: 1::O
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5A9; 17-' (5G?&4?*;@)
'. Allocation o" 3oint costs8
5utting department costs ......................................................... C:,:::
ess net realizable value o" by-product9ales value ............................................................................. C%,7::9eparable cost ....................................................................... (7:: ) ?et realizable value o" animal "eed .................................. %,:::/alance o" 3oint cost to be allocated to main products
in proportion to net realizable value ...................................... C0,:::
Allocation o" 3oint cost89licesBBBBB.. %O ........................................................ C':,1:5rushedBBBB.. '1O ........................................................ 17,60:uiceBBBBBB 17O ........................................................ 6,0:&otal ............................................................................................ C0,:::
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5A9; 17-' (: >4?*&;9)
1. @iagram o" 3oint production process8
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9plit-o""point
&otal 3oint cost8C%1:,::: "ora 1:,::: liter
batch
1:,::: literso" inputcostingC:,:::
ointproduction
process costingC1:,:::
=esoline,
sales value8C%::,:::(0,::: ! C%)
9eparable
processcosting8 C:,:::(0,::: ! C)
=esolite,
sales value8C%0:,:::(0,::: ! C')
Qrypto,sales value8
C1::,:::(%,::: ! C:)
9eparableprocess costing8
C':,:::(%,::: ! C1)
Qryptite,sales value8
C16:,:::(%,::: ! C6)
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5A9; 17-' (5G?&4?*;@)
%. Allocation o" 3oint costs8
a. hysical-units method8
oint5ost
ointroducts
uantity at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C%1:,::: =esoline 0,::: kilograms 0D1: C10,:::Qrypto %,::: kilograms %D1: %,:::&otal 1:,::: kilograms C%1:,:::
b. =elative-sales-value method8
oint5ost
ointroducts
9ales Kalue at9plit-G"" oint
=elativeroportion
Allocation o"oint 5ost
C%1:,::: =esoline C%::,::: %D' C1:,:::Qrypto 1::,::: 1D' 7:,:::&otal C'::,::: C%1:,:::
c. ?et-realizable-value method8
oint5ost
ointroducts
9alesKalue o"
2inal roduct
9eparable5ost o"
rocessing
?et=ealizable
Kalue=elative
roportionAllocation o"
oint 5ost
C%1:,:::Qryptite
=esolite C%0:,::: C:,::: C%:,::: .: C1%,:::16:,::: ':,::: 1:,::: .: 0,:::&otal C::,::: C%1:,:::
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5A9; 17-' (5G?&4?*;@)
'. @ecision analysis8
4ncremental revenue per kilogram8
9ales price o" Gmega ............................................................ C1':9ales price o" Qryptite ........................................................... 64ncremental revenue .............................................................. C '
4ncremental cost per kilogram8F
9eparable processing ........................................................... C:ackaging .............................................................................. 4ncremental cost ....................................................................
4ncremental loss per kilogram................................................... C(11)
5onclusion8 &he Qryptite should not be processed "urther into Gmega.
F?otice that these are the separable costs incurred a"ter Qryptite has already beenproduced. &he separable costs o" processing Qrypto into Qryptite are properlye!cluded.
. &he 3oint cost allocation should not be used in the decision analysis. &he total 3ointcost will not be a""ected by the decision.
. 4n the electronic version o" the solutions manual, press the 5&= key and click onthe "ollowing link8 /uild a 9preadsheet 17-'.!ls
[Final version]
http://var/www/apps/conversion/tmp/scratch_1/Build%20a%20Spreadsheet%20%2017-36.xlshttp://var/www/apps/conversion/tmp/scratch_1/Build%20a%20Spreadsheet%20%2017-36.xls