1. Support department cost allocation—sequential method Becker Tabletops has two support departments (Janitorial and Cafeteria) and...
1. Support department cost allocation—sequential method
Becker Tabletops has two support departments (Janitorial and Cafeteria) and two production departments (Cutting and Assembly). Relevant details for these departments are as follows:
| Support Department | Cost Driver | |
| Janitorial Department | Square footage to be serviced | |
| Cafeteria Department | Number of employees |
| Janitorial Department |
Cafeteria Department |
Cutting Department |
Assembly Department |
|
| Department costs | $310,000 | $169,000 | $1,504,000 | $680,000 |
| Square feet | 50 | 5,000 | 1,000 | 4,000 |
| Number of employees | 10 | 3 | 30 | 10 |
Allocate the support department costs to the production departments using the sequential method.
Allocate the support department with the highest department cost first.
| Cutting Department |
Assembly Department |
||
| Janitorial Department | $ | $ | |
| Cafeteria Department | $ | $ |
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2.
Joint Cost Allocation—Net Realizable Value Method
Lily’s Lemonade Stand makes three types of lemonade: pure, raspberry, and strawberry. The lemonade is produced through a joint mixing process that costs a total of $30 per batch. One batch produces 32 cups of pure lemonade, 21 cups of strawberry lemonade, and 21 cups of raspberry lemonade. After the split-off point, all three lemonades can be sold for $0.80 per cup, but strawberry and raspberry lemonade can be processed further by adding artificial coloring and flavoring and sold for $0.95 and $1.00 per cup, respectively. It is estimated that these additional processing costs are $0.75 and $1.80 per batch for strawberry and raspberry lemonade, respectively.
Allocate the joint costs of production to each product using the net realizable value method.
| Joint Product | Allocation |
| Pure lemonade | $ |
| Strawberry lemonade | |
| Raspberry lemonade | |
| Totals | $ |
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3.
Support department cost allocation—reciprocal services method
Becker Tabletops has two support departments ( Janitorial and Cafeteria) and two production departments (Cutting and Assembly). Relevant details for these departments are as follows:
| Support Department | Cost Driver | |
| Janitorial Department | Square footage to be serviced | |
| Cafeteria Department | Number of employees |
| Janitorial Department |
Cafeteria Department |
Cutting Department |
Assembly Department |
|
| Department costs | $310,000 | $169,000 | $1,504,000 | $680,000 |
| Square feet | 50 | 5,000 | 1,000 | 4,000 |
| Number of employees | 10 | 3 | 30 | 10 |
Allocate the support department costs to the production departments using the reciprocal services method.
| Cutting Department |
Assembly Department |
|||
| Janitorial Department cost allocation | $ | $ | ||
| Cafeteria Department cost allocation | $ | $ |
Homework Answers
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| Becker Tabletops | |||||
| Sequential Method | Janitorial | Cafeteria | Cutting | Assembly | Total |
| Square Feet | 5,000.00 | 1,000.00 | 4,000.00 | 10,000.00 | |
| Square Feet % | 50.00% | 10.00% | 40.00% | 100.0000% | |
| Number of Employees | 30.00 | 10.00 | 40.00 | ||
| Number of Employees % | 75.00% | 25.00% | 100.0000% | ||
| Total costs | 310,000.00 | 169,000.00 | 1,504,000.00 | 680,000.00 | 2,663,000.00 |
| Janitorial cost to be allocated- Square Feet % | (310,000.00) | 155,000.00 | 31,000.00 | 124,000.00 | - |
| Total | - | 324,000.00 | 1,535,000.00 | 804,000.00 | 2,663,000.00 |
| Cafeteria cost to be allocated- Number of Employees % | (324,000.00) | 243,000.00 | 81,000.00 | ||
| Total cost after allocation | - | - | 1,778,000.00 | 885,000.00 | 2,663,000.00 |
| Lily’s Lemonade | |||
| Workings for NRV | A | B | C=A*B |
| Calculation of final sales value | Cups | Sell Price | Market Value |
| Pure lemonade | 32.00 | 0.80 | 25.60 |
| Strawberry lemonade | 21.00 | 0.95 | 19.95 |
| Raspberry lemonade | 21.00 | 1.00 | 21.00 |
| Total | 74.00 | 66.55 | |
| Calculation of NRV | Pure lemonade | Strawberry lemonade | Raspberry lemonade | Total |
| Market Value | 25.60 | 19.95 | 21.00 | |
| Further processing costs | - | 0.75 | 1.80 | |
| NRV | 25.60 | 19.20 | 19.20 | 64.00 |
| Weight of NRV | 40.00% | 30.00% | 30.00% | F |
| G | See F | H=F*G | |
| Allocation of Joint costs | Joint Cost | Weight of base | Allocated cost |
| Pure lemonade | 30.00 | 40.00% | 12.00 |
| Strawberry lemonade | 30.00 | 30.00% | 9.00 |
| Raspberry lemonade | 30.00 | 30.00% | 9.00 |
| Total | 30.00 |
| Becker Tabletops | |||||
| Reciprocal Method | Janitorial | Cafeteria | Cutting | Assembly | Total |
| Square Feet | - | 5,000.00 | 1,000.00 | 4,000.00 | 10,000.00 |
| Number of Employees | 10.00 | - | 30.00 | 10.00 | 50.00 |
| Square Feet % | 0.00% | 50.00% | 10.00% | 40.00% | 100.00% |
| Number of Employees % | 20.00% | 0.00% | 60.00% | 20.00% | 100.00% |
| Total costs | 310,000.00 | 169,000.00 | 1,504,000.00 | 680,000.00 | 2,663,000.00 |
| Let cost of Janitorial is $ X and Cafeteria is $ Y |
| So, X= 310000+ 0.20Y |
| Y= 169000+ 0.50X |
| Substituting the value of X in equation 2: |
| Y = 169000 + 0.50(310000 + 0.20Y) |
| Y = 169000 + 115000+.010Y |
| Y – 0.010Y = 115000+169000 |
| 0.90Y = 384,000 |
| Y = 384000/0.90 |
| Y = $ 426,667 |
| Substituting the value of Y in equation 1: |
| So, X= 310000+ .020Y |
| So, X= 310000+ 0.20*426667 |
| So, X= 310000+ 85333 |
| X= $ 395,333 |
| Allocation Summary | Janitorial | Cafeteria | Cutting | Assembly | Total |
| Square Feet % | - | 50.00% | 10.00% | 40.00% | 100.00% |
| Number of Employees % | 20.00% | - | 60.00% | 20.00% | 100.00% |
| Department cost | 310,000.00 | 169,000.00 | 1,504,000.00 | 680,000.00 | 2,663,000.00 |
| Total costs | |||||
| Janitorial | (395,333.00) | 197,666.50 | 39,533.30 | 158,133.20 | - |
| Cafeteria | 85,333.00 | (426,667.00) | 256,000.20 | 85,333.80 | - |
| Cost after allocation | - | (60,000.50) |
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