Question

1. Joint Cost Allocation—Market Value at Split-off Method

Man O’Fort Inc. produces two different styles of door handles, standard and curved. The door handles go through a joint production molding process costing $30,000 per batch and producing 2,200 standard door handles and 1,100 curved door handles at the split-off point. Both door handles undergo additional production processes after the split-off point, but could be sold at that point: the standard style for $8 per door handle and the curved style for $4 per door handle.

Determine the amount of joint production costs allocated to each style of door handle using the market value at split-off method.

Joint Product	Allocation
Standard door handle	$
Curved door handle
Totals	$

2. Support Department Cost Allocation—Direct Method

Yo-Down Inc. produces yogurt. Information related to the company’s yogurt production follows:

	Production Department 1		Production Department 2		Production Department 3
Support Department 1 cost driver	7,000		1,500		1,500

Support Department 1’s costs total $120,000. Using the direct method of support department cost allocation, determine the costs from Support Department 1 that should be allocated to each production department.

	Production Department 1		Production Department 2		Production Department 3
Support Department 1 cost allocation	$		$		$

3. Support Department Cost Allocation—Sequential Method

Snowy River Stallion Inc. produces horse and rancher equipment. Costs from Support Department 1 are allocated based on the number of employees. Costs from Support Department 2 are allocated based on asset value. Relevant department information is provided in the following table:

	Support Department 1		Support Department 2		Production Department 1		Production Department 2
Number of employees	9		7		25		18
Asset value	$1,150		$670		$6,230		$5,100
Department cost	$20,000		$15,500		$99,000		$79,000

Using the sequential method of support department cost allocation, determine the total costs from Support Department 1 (assuming they are allocated first) that should be allocated to Support Department 2 and to each of the production departments.

	Support Department 2		Production Department 1		Production Department 2
Support Department 1 cost allocation	$		$		$

Answer 1

Answer 1- Allocation of Common cost on the basis of derived selling price % basis

Joint Cost allocation _ Market value at Split of Method
Modelling processing Cost ( $)	30,000
	NO of unit Produced)a)	Selling price / Unit @ Spilt Point($)(b)	Selling price ($)(a*b)=(c)	Allocation on the basis of Selling price(d)		Allocation of cost($)
Standard Door Handle	2200	8	17600	80%	17600/22000	24,000	80%*30,000
Curved Door Handle	1100	4	4400	20%	4400/22000	6,000	20%*30,000
Total			22000			30,000

Answer 2

Support department cost allocaiton
Method used - Direct Method	Cost Driver
Production Dept 1	7000
Production Dept 2	1500
Production Dept 3	1500
Total Unit	10000
Support department cost ($)	1,20,000
Direct Allocation of cost ( proportionate basis_)		Allocated cost($)
Production Dept 1	7000/10000*120000	84000
Production Dept 2	1500/10000*120000	18000
Production Dept 3	1500/10000*120000	18000
Total Cost		120000

Cost allocation based on Sequential Method .. Allocation cost based on Number of Employee .. How formula derived also mentioned below  

Sequential Method of Cost Allocation
Support Deptt 1 cost are allowed on Number of Employees basis
Number of Employees		Support Dept 2	Production Dept 1	Production Dept 2	Total No of Employees
Number of Employees		7	25	18	50
Support Deptt Cost ( $)	20,000	Support Dept 2 ($)	Production Dept 1($)	Production Dept 2($)	Total Cost($)
Allocation of Cost- No of Employee basis		2,800	10,000	7,200	20,000
Derived Formula		7/50*20000	25/50*20000	18/50*20000