Question

1.

Carolina Corporation has two production Departments: P1 and P2 and two service departments: S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
  

				Proportion of Services Used by:
Department	Direct costs			S1		S2		P1		P2
S1	$	72,000				0.70		0.10		0.20
S2	$	157,000		0.20				0.30		0.50
P1	$	214,000
P2	$	179,000

Under the direct-method of cost allocation, the amount of S1 costs allocated to P1 would be:

2.

Carolina Corporation has two production Departments: P1 and P2 and two service departments: S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:

				Proportion of Services Used by:
Department	Direct costs			S1		S2		P1		P2
S1	$	78,000				0.70		0.10		0.20
S2	$	127,000		0.20				0.30		0.50
P1	$	229,000
P2	$	217,000

Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be:

3. Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?

Answer 1

1.

Amount of S1 cost allocated to P1 under direct method is = $72,000*10/30 = $24,000

2.

Amount of cost allocated from S2 to P2 under step method:

Total cost of S2 department = Direct cost + cost allocated from S1 to S2

Total cost of S2 department = $127,000+54,600 (78,000*0.70) = $181,600

Amount of cost allocated from S2 to P2 under step method = $181,600*30/80 = $68,100

3.

	Total	X	Y	Z
Units produced (in pounds)	5,000	1,500	2,500	1,000
Selling price		$2	$4	$0
Sales value (Net realizable value)	$13,000	$3,000	$10,000	$0
Joint cost allocated	5,200	1,200 (5,200*3/13)	4,000 (5,200*10/13)
Cost per unit		$0.8 (1,200/1,500)	$1.6 (4,000/2,500)
Value of ending inventory of X = 50*$0.8 = $40