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Unformatted text preview: CHAPTER 13 ALLOCATING COSTS TO RESPONSIBILITY CENTERS Questions, Exercises, Problems, and Cases: Answers and Solutions 13.1 See text or glossary at the end of the book. 13.2 No product for external consumption passes through service departments. Service departments exist to provide services to the production departments which produce goods and services. 13.3 A direct cost is one that firms can identify specifically with a particular product, department, or process. An indirect cost, in contrast, results from the joint use of a facility or a service by several products, departments, or processes. 13.4 The three steps in the cost allocation process are: (1) allocate direct costs to all departments; (2) allocate indirect costs to all departments; and (3) allocate service department costs to production departments. 13.5 Joint production processes are characterized by the transformation of common (joint) inputs into multiple products such that use of the common inputs cannot be traced directly to any of the types of products. 13.6 The objective of joint-cost allocation is to measure all costs of production for each joint product. These production costs include further processing costs and some reasonable share of joint processing costs. 13.7 Common Cost Allocation Base Building Utilities Space Occupied Payroll Accounting Number of Employees Insurance Value of Equipment and Inventories Equipment Repair Number of Service Calls Quality Control Inspection Number of Units Produced 13.8 The primary reason for accumulating costs at the service department is to enable managers to control those costs. 13-1 Solutions 13.9 Direct and indirect are defined as such with respect to cost objects. In this case, there are two cost objectsthe product and the department. Consider the paint used to paint cars in the paint department of a car assembly plant. The paint is direct to the cars and to the department. The solvent used to clean the paint machines at the end of each work shift is direct to the department but indirect to each car because it cannot be traced to each car. 13.10 The different methods give the same results when service departments do not provide services to other service departments. 13.11 Suppose production Departments A and B each have 50 employees, and the Service Department has fixed costs of $1,000. Each production department will be allocated $500. Now suppose that production Department A adds 50 employees. Now Department A is allocated $666.67 (= (50 + 50)/150) total employees and Department B is allocated $333.33. Although Department B did employees and Department B is allocated $333....
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- Spring '11