1. Copyright © 2012 McGraw-Hill Ryerson Limited 4-1 PowerPoint Author: Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance MANAGERIAL ACCOUNTING Ninth Canadian Edition GARRISON, CHESLEY, CARROLL, WEBB, LIBBY Systems Design: Process Costing Chapter 4

2. 4-2 Copyright © 2012 McGraw-Hill Ryerson Limited Similarities Between Job-Order and Process Costing  Both systems assign material, labour, and overhead costs to products and they provide a mechanism for computing unit product costs.  Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods.  The flow of costs through the manufacturing accounts is basically the same in both systems. LO 1

3. 4-3 Copyright © 2012 McGraw-Hill Ryerson Limited Differences Between Job-Order and Process Costing Differences: 1. Process costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period. 2. Process costing systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs. 3. Process costing systems use department production reports to accumulate costs. Job-order costing systems use job cost sheets to accumulate costs. 4. Process costing systems compute unit costs by department. Job- order costing systems compute unit costs by job on the job cost sheet. LO 1

4. 4-4 Copyright © 2012 McGraw-Hill Ryerson Limited Process costing is used for products that are: a.Different and produced continuously. b.Similar and produced continuously. c.Individual units produced to customer specifications. d.Purchased from vendors. Process costing is used for products that are: a.Different and produced continuously. b.Similar and produced continuously. c.Individual units produced to customer specifications. d.Purchased from vendors. LO 1 Quick Check

5. 4-5 Copyright © 2012 McGraw-Hill Ryerson Limited Process costing is used for products that are: a.Different and produced continuously. b.Similar and produced continuously. c.Individual units produced to customer specifications. d.Purchased from vendors. Process costing is used for products that are: a.Different and produced continuously. b.Similar and produced continuously. c.Individual units produced to customer specifications. d.Purchased from vendors. LO 1 Quick Check

6. 4-6 Copyright © 2012 McGraw-Hill Ryerson Limited Processing Departments Any unit in an organization where materials, labour, or overhead are added to the product. The activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous. Products in a process costing environment typically flow in a sequence from one department to another. LO 1

7. 4-7 Copyright © 2012 McGraw-Hill Ryerson Limited Comparing Job-Order and Process Costing Finished Goods Cost of Goods Sold Work in Process Direct Materials Direct Labour Manufacturing Overhead LO 1

8. 4-8 Copyright © 2012 McGraw-Hill Ryerson Limited Comparing Job-Order and Process Costing Finished Goods Cost of Goods Sold Direct Labour Manufacturing Overhead JobsJobs Costs are traced and applied to individual jobs in a job-order cost system. Direct Materials LO 1

9. 4-9 Copyright © 2012 McGraw-Hill Ryerson Limited Comparing Job-Order and Process Costing Finished Goods Cost of Goods Sold Direct Labour Manufacturing Overhead Processing Department Processing Department Costs are traced and applied to departments in a process cost system. Direct Materials LO 1

10. 4-10 Copyright © 2012 McGraw-Hill Ryerson Limited T-Account and Journal Entry Views of Cost Flows For purposes of this example, assume there are two processing departments – Departments A and B. We will use T-accounts and journal entries. LO 1

11. 4-11 Copyright © 2012 McGraw-Hill Ryerson Limited Raw Materials Process Cost Flows: The Flow of Raw Materials (in T-account form) Work in Process Department B Work in Process Department A Direct Materials LO 1

12. 4-12 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: The Flow of Raw Materials (in journal entry form) LO 1

13. 4-13 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: The Flow of Labour Costs (in T-account form) Work in Process Department B Work in Process Department A Salaries and Wages Payable Direct Materials Direct Labour LO 1

14. 4-14 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: The Flow of Labour Costs (in journal entry form) LO 1

15. 4-15 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: The Flow of Manufacturing Overhead Costs (in T-account form) Work in Process Department B Work in Process Department A Manufacturing Overhead Overhead Applied to Work in Process Applied Overhead Direct Labour Direct Materials Direct Labour Direct Materials Actual Overhead LO 1

16. 4-16 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: The Flow of Manufacturing Overhead Costs (in journal entry form) LO 1

17. 4-17 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in T-account form) Work in Process Department B Work in Process Department A Direct Materials Direct Labour Applied Overhead Direct Materials Direct Labour Applied Overhead Transferred to Dept. B Transferred from Dept. A Department A Department B LO 1

18. 4-18 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in journal entry form) LO 1

19. 4-19 Copyright © 2012 McGraw-Hill Ryerson Limited Finished Goods Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in T-account form) Work in Process Department B Cost of Goods Manufactured Direct Materials Direct Labour Applied Overhead Transferred from Dept. A Cost of Goods Manufactured LO 1

20. 4-20 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in journal entry form) LO 1

21. 4-21 Copyright © 2012 McGraw-Hill Ryerson Limited Finished Goods Cost of Goods Sold Process Cost Flows: Transfers from Finished Goods to COGS (in T-account form) Work in Process Department B Cost of Goods Manufactured Direct Materials Direct Labour Applied Overhead Transferred from Dept. A Cost of Goods Sold Cost of Goods Manufactured LO 1

22. 4-22 Copyright © 2012 McGraw-Hill Ryerson Limited Process Cost Flows: Transfers from Finished Goods to COGS (in journal entry form) LO 1

23. 4-23 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units of Production Equivalent units are the product of the number of partially completed units and the percentage completion of those units. We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory. LO 2

24. 4-24 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units – The Basic Idea Two half completed products are equivalent to one complete product. So, 10,000 units 70% complete are equivalent to 7,000 complete units. + = 1 LO 2

25. 4-25 Copyright © 2012 McGraw-Hill Ryerson Limited For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 Quick Check LO 2

26. 4-26 Copyright © 2012 McGraw-Hill Ryerson Limited For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units Quick Check LO 2

27. 4-27 Copyright © 2012 McGraw-Hill Ryerson Limited Calculating Equivalent Units Equivalent units can be calculated two ways:  The First-In, First-Out Method – FIFO is covered in the appendix to this chapter.  The Weighted-Average Method – This method will be covered in the main portion of the chapter. Equivalent units can be calculated two ways:  The First-In, First-Out Method – FIFO is covered in the appendix to this chapter.  The Weighted-Average Method – This method will be covered in the main portion of the chapter. LO 2

28. 4-28 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units of Production Weighted-Average Method The weighted-average method... Makes no distinction between work done in prior or current periods. Blends together units and costs from prior and current periods. Determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ending work in process inventory. LO 2

29. 4-29 Copyright © 2012 McGraw-Hill Ryerson Limited Treatment of Direct Labour Direct labour costs may be small in comparison to other product costs in process cost systems. Direct labour costs may be small in comparison to other product costs in process cost systems. Direct Materials Type of Product Cost Dollar Amount Direct Labour Manufacturing Overhead LO 2

30. 4-30 Copyright © 2012 McGraw-Hill Ryerson Limited Treatment of Direct Labour Type of Product Cost Dollar Amount Conversion Direct labour and manufacturing overhead may be combined into one classification of product cost called conversion costs. Direct Materials Direct Labour Manufacturing Overhead LO 2

31. 4-31 Copyright © 2012 McGraw-Hill Ryerson Limited Weighted-Average Example Double Diamond Skis reported the following activity in Shaping and Milling Department for the month of May: LO 2

32. 4-32 Copyright © 2012 McGraw-Hill Ryerson Limited The first step in calculating the equivalent units is to identify the units completed and transferred out of the Department in May (4,800 units) Weighted-Average Example LO 2

33. 4-33 Copyright © 2012 McGraw-Hill Ryerson Limited The second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (160 units) and add this to the 4,800 units from step one. Weighted-Average Example LO 2

34. 4-34 Copyright © 2012 McGraw-Hill Ryerson Limited Weighted-Average Example The third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (100 units) and add this to the 4,800 units from step one. LO 2

35. 4-35 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process Weighted-Average Example LO 2

36. 4-36 Copyright © 2012 McGraw-Hill Ryerson Limited Beginning Work in Process 200 Units 55% Complete Ending Work in Process 400 Units 40% Complete 5,000 Units Started 4,800 Units Started and Completed Weighted-Average Example Materials 4,800 Units Completed 160 Equivalent Units 400 × 40% 4,960 Equivalent units of production LO 2

37. 4-37 Copyright © 2012 McGraw-Hill Ryerson Limited 5,000 Units Started 4,800 Units Completed 4,800 Units Started and Completed 100 Equivalent Units 400 × 25% 4,900 Equivalent units of production Beginning Work in Process 200 Units 30% Complete Ending Work in Process 400 Units 25% Complete Weighted-Average Example Conversion LO 2

38. 4-38 Copyright © 2012 McGraw-Hill Ryerson Limited Beginning work in process: 200 units Materials: 55% complete $9,600 Conversion: 30% complete5,575 Production started during May5,000 units Production completed during May4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Ending work in process 400 units Materials: 40% complete Conversion: 25% complete Beginning work in process: 200 units Materials: 55% complete $9,600 Conversion: 30% complete5,575 Production started during May5,000 units Production completed during May4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Ending work in process 400 units Materials: 40% complete Conversion: 25% complete Compute and Apply Costs LO 3

39. 4-39 Copyright © 2012 McGraw-Hill Ryerson Limited Compute and Apply Costs The formula for computing the cost per equivalent unit is : Cost per equivalent unit = Cost of beginning work in process inventory Cost added during the period Equivalent units of production + LO 3

40. 4-40 Copyright © 2012 McGraw-Hill Ryerson Limited Here is a schedule with the cost and equivalent unit information. Compute and Apply Costs LO 3

41. 4-41 Copyright © 2012 McGraw-Hill Ryerson Limited Compute and Apply Costs $356,475 ÷ 4,900 units = $72.75 $378,200 ÷ 4,960 units = $76.25 Here is a schedule with the cost and equivalent unit information. LO 3

42. 4-42 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs LO 4

43. 4-43 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs LO 4

44. 4-44 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs LO 4

45. 4-45 Copyright © 2012 McGraw-Hill Ryerson Limited Computing the Cost of Units Transferred Out LO 4

46. 4-46 Copyright © 2012 McGraw-Hill Ryerson Limited Computing the Cost of Units Transferred Out LO 4

47. 4-47 Copyright © 2012 McGraw-Hill Ryerson Limited Computing the Cost of Units Transferred Out LO 4

48. 4-48 Copyright © 2012 McGraw-Hill Ryerson Limited Reconciling Costs LO 5

49. 4-49 Copyright © 2012 McGraw-Hill Ryerson Limited Reconciling Costs LO 5

50. 4-50 Copyright © 2012 McGraw-Hill Ryerson Limited Operation costing is a hybrid of job-order and process costing because it possesses attributes of both approaches. Conversion costs assigned to batches as in process costing. Material Costs charged to batches as in job-order costing. Job-order Costing Process Costing Operation Costing (Products produced in batches) Operation Costing Operation costing is commonly used when batches of many different products pass through the same processing department. LO 5

51. 4-51 Copyright © 2012 McGraw-Hill Ryerson Limited Appendix 4A FIFO Method

52. 4-52 Copyright © 2012 McGraw-Hill Ryerson Limited FIFO vs. Weighted-Average Method The FIFO method (generally considered more accurate that the weighted-average method) differs from the weighted-average method in two ways: 1.The computation of equivalent units. 2.The way in which the costs of beginning inventory are treated in the cost reconciliation report. 1.The computation of equivalent units. 2.The way in which the costs of beginning inventory are treated in the cost reconciliation report. LO 6

53. 4-53 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units – FIFO Method Let’s revisit the Double Diamond Skis example. Assume the following activity is reported in Shaping and Milling Department for May: LO 6

54. 4-54 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units – FIFO Method Step 1 Step 1: Determine equivalent units needed to complete beginning inventory. LO 6

55. 4-55 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units – FIFO Method Step 2 Step 2: Determine units started and completed during the period. LO 6

56. 4-56 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units – FIFO Method Step 3 Step 3: Add the equivalent units in ending work in process inventory. LO 6

57. 4-57 Copyright © 2012 McGraw-Hill Ryerson Limited Beginning Work in Process 200 Units 55% Complete Ending Work in Process 400 Units 40% Complete 5,000 Units Started 4,600 Units Started and Completed FIFO Example MaterialsMaterials 4,600 Units Completed 160 Equivalent Units 400 × 40% 4,850 Equivalent units of production 90 Equivalent Units 200 × 45% LO 6

58. 4-58 Copyright © 2012 McGraw-Hill Ryerson Limited Beginning Work in Process 200 Units 30% Complete Ending Work in Process 400 Units 25% Complete 5,000 Units Started 4,600 Units Started and Completed FIFO Example Conversion 4,600 Units Completed 100 Equivalent Units 400 × 25% 4,840 Equivalent units of production 140 Equivalent Units 200 × 70% LO 6

59. 4-59 Copyright © 2012 McGraw-Hill Ryerson Limited Equivalent Units: Weighted Average vs. FIFO As shown below, the equivalent units in beginning inventory are subtracted from the equivalent units of production per the weighted- average method to obtain the equivalent units of production under the FIFO method. LO 6

60. 4-60 Copyright © 2012 McGraw-Hill Ryerson Limited Cost per Equivalent Unit - FIFO Let’s revisit the Double Diamond Skis Shaping and Milling Department for the Month of May to prepare our production report. Beginning work in process: 200 units Materials: 55% complete $9,600 Conversion: 30% complete5,575 $ 15,175 Production started during May5,000 units Production completed during May4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Ending work in process: 400 units Materials: 40% complete Conversion: 25% complete Beginning work in process: 200 units Materials: 55% complete $9,600 Conversion: 30% complete5,575 $ 15,175 Production started during May5,000 units Production completed during May4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Ending work in process: 400 units Materials: 40% complete Conversion: 25% complete LO 7

61. 4-61 Copyright © 2012 McGraw-Hill Ryerson Limited Cost per Equivalent Unit - FIFO The formula for computing the cost per equivalent unit under FIFO method is as follows: Cost per equivalent unit = Cost added during the period Equivalent units of production LO 7

62. 4-62 Copyright © 2012 McGraw-Hill Ryerson Limited Cost per Equivalent Unit - FIFO LO 7

63. 4-63 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs - FIFO Step 1 Step 1: Record the equivalent units of production in ending work in process inventory. LO 8

64. 4-64 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs - FIFO Step 2 Step 2: Record the cost per equivalent unit. LO 8

65. 4-65 Copyright © 2012 McGraw-Hill Ryerson Limited Applying Costs - FIFO Step 3 Step 3: Compute the cost of ending work in process inventory. LO 8

66. 4-66 Copyright © 2012 McGraw-Hill Ryerson Limited Cost of Units Transferred Out Step 1 Step 1: Record the cost in beginning work in process inventory. LO 8

67. 4-67 Copyright © 2012 McGraw-Hill Ryerson Limited Cost of Units Transferred Out Step 2 Step 2: Compute the cost to complete the units in beginning work in process inventory. LO 8

68. 4-68 Copyright © 2012 McGraw-Hill Ryerson Limited Cost of Units Transferred Out Step 3 Step 3: Compute the cost of units started and completed this period. LO 8

69. 4-69 Copyright © 2012 McGraw-Hill Ryerson Limited Cost of Units Transferred Out Step 4 Step 4: Compute the total cost of units transferred out. LO 8

70. 4-70 Copyright © 2012 McGraw-Hill Ryerson Limited Reconciling Costs LO 8

71. 4-71 Copyright © 2012 McGraw-Hill Ryerson Limited Reconciling Costs LO 8

72. 4-72 Copyright © 2012 McGraw-Hill Ryerson Limited A Comparison of Costing Methods In a lean production environment, FIFO and weighted-average methods yield similar unit costs. When considering cost control, FIFO is superior to weighted-average because it does not mix costs of the current period with costs of the prior period. LO 8

73. 4-73 Copyright © 2012 McGraw-Hill Ryerson Limited Appendix 4B Service Department Allocations

74. 4-74 Copyright © 2012 McGraw-Hill Ryerson Limited Operating Departments An operating department carries out the central purpose of the organization. The Geography Department at your University. An Assembly Department at Bombardier. LO 9

75. 4-75 Copyright © 2012 McGraw-Hill Ryerson Limited Service Departments A service department does not directly engage in operating activities. The Accounting Department at Lowes. The Human Resources Department at Walmart. LO 9

76. 4-76 Copyright © 2012 McGraw-Hill Ryerson Limited Interdepartmental Services Service Department Operating Department Costs of the service department become overhead costs to the operating department. LO 9

77. 4-77 Copyright © 2012 McGraw-Hill Ryerson Limited Allocation Approaches Direct Method   Step-Down Method   Reciprocal Method   LO 9

78. 4-78 Copyright © 2012 McGraw-Hill Ryerson Limited Reciprocal Services Service Department 1 Service Department 2 When service departments provide services to each other we call them reciprocal services. LO 9

79. 4-79 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method Service Department (Cafeteria) Service Department (Custodial) Operating Department (Machining) Operating Department (Assembly) Interactions between service departments are ignored and all costs are allocated directly to operating departments. Interactions between service departments are ignored and all costs are allocated directly to operating departments. LO 9

80. 4-80 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method LO 9

81. 4-81 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method How much of the Cafeteria and Custodial costs should be allocated to each operating department using the direct method of cost allocation? LO 9

82. 4-82 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method Allocation base: Number of employees $360,000 × 20 20 + 30 = $144,000 LO 9

83. 4-83 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method Allocation base: Number of employees $360,000 × 30 20 + 30 = $216,000 LO 9

84. 4-84 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method Allocation base: Square feet occupied $90,000 × 25,000 25,000 + 50,000 = $30,000 LO 9

85. 4-85 Copyright © 2012 McGraw-Hill Ryerson Limited Direct Method Allocation base: Square feet occupied 50,000 25,000 + 50,000 $90,000 × = $60,000 LO 9

86. 4-86 Copyright © 2012 McGraw-Hill Ryerson Limited Operating Department (Machining) Operating Department (Assembly) Step-Down Method Once a service department’s costs are allocated, other service department costs are not allocated back to it. Service Department (Cafeteria) Service Department (Custodial) LO 10

87. 4-87 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method There are three key points to understand regarding the step method:  In both the direct and step methods, any amount of the allocation base attributable to the service department whose cost is being allocated is always ignored.  Any amount of the allocation base that is attributable to a service department whose cost has already been allocated is ignored.  Each service department assigns its own costs to operating departments plus the costs that have been allocated to it from other service departments. LO 10

88. 4-88 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method We will use the same data used in the direct method example. LO 10

89. 4-89 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method Allocate Cafeteria costs first since it provides more service than Custodial. LO 10

90. 4-90 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method $360,000 × 10 10 + 20 + 30 = $60,000 Allocation base: Number of employees LO 10

91. 4-91 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method $360,000 × 20 10 + 20 + 30 = $120,000 Allocation base: Number of employees LO 10

92. 4-92 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method $360,000 × 30 10 + 20 + 30 = $180,000 Allocation base: Number of employees LO 10

93. 4-93 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method New total = $90,000 original Custodial cost plus $60,000 allocated from the Cafeteria. LO 10

94. 4-94 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method $150,000 × 25,000 25,000 + 50,000 = $50,000 Allocation base: Square feet occupied LO 10

95. 4-95 Copyright © 2012 McGraw-Hill Ryerson Limited Step-Down Method $150,000 × 50,000 25,000 + 50,000 = $100,000 Allocation base: Square feet occupied LO 10

96. 4-96 Copyright © 2012 McGraw-Hill Ryerson Limited Reciprocal Method Interdepartmental services are given full recognition rather than partial recognition as with the step method. Service Department (Cafeteria) Service Department (Custodial) Operating Department (Machining) Operating Department (Assembly) Because of its mathematical complexity, the reciprocal method is rarely used. LO 11

97. 4-97 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check Data for Direct and Step Methods Allocation bases: Business school administration costs (ADMIN): Number of employees Business Administration computer services (BACS): Number of personal computers The direct method of allocation is used. LO 11

98. 4-98 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000 How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000 LO 11

99. 4-99 Copyright © 2012 McGraw-Hill Ryerson Limited How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000 How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000 Quick Check $180,000 × 20 20 + 80 = $36,000 LO 11

100. 4-100 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500 LO 11

101. 4-101 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500 $90,000 × 18 18 + 102 = $13,500 LO 11

102. 4-102 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check Data Allocation bases: Business school administration costs (ADMIN): Number of employees Business administration computer services (BACS): Number of personal computers The step method of allocation is used. LO 11

103. 4-103 Copyright © 2012 McGraw-Hill Ryerson Limited Quick Check How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333 LO 11

104. 4-104 Copyright © 2012 McGraw-Hill Ryerson Limited How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333 Quick Check LO 11

105. 4-105 Copyright © 2012 McGraw-Hill Ryerson Limited End of Chapter 4