Sheet Review - Cost & Management Accounting 2 - Term Test #2, April 27, 2006
Learning Outcome
Reference
Unit 4: Appendix A - Service Dept. Costing and Other Allocations
Theory: Difference between operating and service departments; pros and cons of the
three methods: direct, step, and reciprocal; which is most precise, least precise, and
why? etc.,
Basis for allocating costs according to cost behavior (variable vs. fixed); if done at
A-3, A-4, A-5, A-6, A-10,
beginning of the year; if done at the end of the year. ; reason why it is inappropriate
to allocate fixed service dept costs using actual usage
Allocation of Common coststwo methods: stand alone method; incremental
Problem 1 on handout; 14-22; 14-23
method; definition of a common cost.
on handout
Unit 5 : Supplemental Handout - Allocation of Joint Products and By
Products
Definitions: Joint cost, joint product, main product, by product, scrap, separable cost;
separable product, split-off point.;
Why Sales value at split-off is a popular method; potential problem with physical
measures method; potential problem with constant GP% method
Methods: - where there is a market for all products at split-off
SV at SO: 15-16, 15-28
Sales Value at Split-ff method
PM: 15-16, 15-19, 15-28
Physical Measures method
- Where there isnt a market for all products at split-off
Estd NRV: 15-21, 15-22, 15-18, 15Estimated NRV method
28, 15-19
Constant Gross Profit NRV method
Constant GP%: 15-22
For all methods, calculate the Manufacturing cost in total and per unit; calculate the
value of COGS and/or ending inventory; Calculate the GP% (either using FSVP or
Sales) , and possibly the GP in $ (using Sales and COGS)
Treatment of a by-product; also, sell at split-off or process further decisions
15-28 (2), 15-23, 15-22 (3)
Problem of allocating costs using Sales $, why it is a popular allocation when
sales base; $ is an appropriate allocation base.
Chapter 12: Segment Reporting
Theory: understand the following concepts: decentralization, segment, cost centre,
See Chapter Highlights and text
revenue centre, investment centre, responsibility centre (p547-548), traceable fixed
cost, common fixed cost, segment margin (p.551-555), cross-subsidization,
inappropriate methods of allocating costs among segments (p.559-560), the fact
that traceable costs for one segment level can become common costs at another
segment level (p554), net operating income, average operating assets, margin,
turnover, arguments for using net book value vs. gross cost to measure operating
assets (p. 567), three methods of increasing ROI (p.569-570); problem of using
ROI in considering an investment proposal for a given segment (p.571 top);
residual income including problem with this method; transfer price
Prepare a segmented income statement in good form. Be able to identify traceable
E12-2, 12-3, 12-5, P12-14,
fixed vs. common costs; interpret the results in terms of what areas need
managements attention, particularly when comparing segments
Calculate ROI, margin, and turnover
E12-7, 12-8, 12-9
Calculate Residual income
E12-8, E12-9
Evaluate whether a given segment would accept an investment proposal if ROI is
E12-9, E12-10,
used as the basis; if residual income is used as the basis
Calculate the maximum and minimum transfer prices for a given situation both when
12-11, 12-12, 12-13,
ample capacity exists to accept the internal order and when ample capacity does not
exist.
Calculate the effect of accepting a given transfer price on each segment and on the
E12-12
company as a whole
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