Q5 Valdosta State University has two colleges, College of Business Administratio
ID: 2467773 • Letter: Q
Question
Q5
Valdosta State University has two colleges, College of Business Administration (COBA) & College of Education (COE). The two support departments are Physical Plant & the Library. The costs incurred in each of these departments is as follows:
COBA
$ 90,000
COE
$ 70,000
Physical Plant
$120,000
Library
$ 80,000
The actual level of support is as follows:
Supplied by
Used by
Physical Plant
Library
COBA
COE
Physical Plant
40%
35%
25%
Library
20%
50%
30%
Determine the:
Cost allocated to COBA using the direct method
Cost allocated to COBA using the step-down method (allocating Library first)
Cost allocated to COBA using the reciprocal method
Question 6 (2 points)
Trident Company produces two varieties of pine wood, A & B, from a common processing of lumber. The amount of each product produced in March 2001 is 24,000 square feet and 28,000 square feet respectively. A is a superior grade pine and sells for $6 per square foot. B sells for $5 per square foot. The additional processing costs for A & B are $48,000 and $15,000 respectively. The joint processing cost is $125,000.
Determine the following:
Joint cost allocated to each product A & B using the physical volume method, relative sales value method, and net realizable value method.
The unit cost of each product using the net realizable value method
COBA
$ 90,000
COE
$ 70,000
Physical Plant
$120,000
Library
$ 80,000
Explanation / Answer
Q 5 .
Costs allocated to COBA using the direct method:
Departments Providing
Services
Costs allocated to COBA using the step-down method (allocating Library first)
Departments Providing
Services
$16,000 (20%)
$40,000 (50%)
$24,000 (30%)
$120,000 (+$16,000)
$79,333(35/60)
Reciprocal method
Departments Providing
Services
$147,826
$59,130(40%)
$51,739(35%)
$36,957(25%)
$27,826(20%)
$69,565(50%)
$41,739(30%)
In order to determine the costs allocated to the user departments, you first have to set up the equations to determine total costs of each service department: PP =$120,000 + 20% (L)...(i) L =$80,000 + 40% (PP)...(ii) or, PP = $120,000 + 20% [$80,000 + 40% (PP)] or, PP = $120,000 + $16,000 + 8% PP or, 92% PP = $136,000 or, PP = $147,826 Therefore, L = $80,000 + 40% ($147,826) or, L = $139,130 The reciprocal method is the most realistic of the three methods since it accurately reflects actual usage of services
Q 6
Joint
Cost
Joint
Products
Quantity at
Split-Off Point
Relative
Proportion
Allocation
of
Joint Cost
24,000 ft2
28,000 ft2
52,000 ft2
Relative sales value method
Joint
Cost
Joint
Products
Quantity at
Split-Off Point
Sales
Price/lb
Sales Value at
Split-Off
Relative
Proportion
Allocation
of
Joint Cost
24,000 ft2
28,000 ft2
52,000 ft2
Net realizable value method
Joint
Cost
Joint
Products
Sales
Additional Cost
of Processing
Net
Realizable
Value
Relative
Proportion
Allocation
of
Joint Cost
Unit cost (using the net realizable value method)
Joint
Products
Allocation
of
Joint Cost
Additional Cost of
Processing
Quantity
at
Split-Off
24,000 ft2
$4.26/ft2
Departments Providing
Services
Costs to Be Allocated Departments Using Services COBA COE Physical Plant$120,000 $70,000 (35/60) $50,000 (25/60) Library $ 80,000 $50,000 (50/80) $30,000 (30/80) Tota $200,000 $120,000 $80,000
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