CHAPTER 17

Allocation of Support Activity Costs and Joint

Costs
( For 17-15 and 17-16, these solutions are arrived when budgeted costs for Library and
Computing Services are $ 600,000 and $ 240,000 , instead of $ 750,000 and $ 320,000 )

Exercise 17-15
1. Cost allocation using direct method:
Liberal Arts = $ 450,000
Sciences = $ 390,000
Grand Total = $ 840,000

Exercise 17-16
1. Cost allocation using step-down method
Liberal Arts = $ 460,800
Sciences = $ 379,200
Total Cost = $ 840,000

Exercise 17-17
Deposit = $ 237,000
Loan = $ 145,500
Grand Total = $ 382,500

Exercise 17-18
Deposit = $ 235,800
Loan = $ 146,700
Total Cost = $ 382,500

Exercise 17-20
(Using $ 30,000 instead of $ 60,000 as Joint Cost as given in the book, for Prob. 17-20, 17-21
and 17-22))
Allocation of Joint Cost
$ 18,000 and $ 12,000

Exercise 17-21
(When Sales Price is 2 and 2.50 instead of 1.50 and 3 as given in the book)
$ 16350 and $ 13650

Exercise 17-22
** Unable to verify book figures with the solution manual.

Exercise 17-23
b) Cost allocation using the reciprocal-services method
Deposit = $ 238,431
Loan = $ 144,069

Exercise 17-24
1. Direct method
Machining = $ 480,944
Assembly = $ 349,056
(Here, total Cost for HR is $ 250,000 and all other costs are same as that given in the book)
2. Sequence
1st = HR
2nd = Maintenance
3rd = CAD

3. Step Down Method:

HR = $ 250,000
Maintenance = $ 242,500
CAD = $ 377,656

Exercise 17-25
1.
a. $97,055 + $82,945 = $180,000
b. $422,353 + $227,647 = $650,000
(Here fixed cost for HR is $ 200,000 and all other costs remain unchanged)
c. Total Cost = $ 519408 and $ 310592, thus making a total of $ 830000 (Total cost for
HR is $ 250000 instead of $ 180000)

2. Sequence
1st = HR

2nd = Maintenance
3rd = CAD
3. a. $99,336 + $80,664 = $180,000
b. $434,800 + $215,200 = $650,000
(Here fixed cost for HR is $ 200,000 and all other costs remain unchanged)
c. Total Cost = $ 534136 and $ 295864, thus making a total of $ 830000 (Total cost for
HR is $ 250000 instead of $ 180000)

Exercise 17-26
1. Direct method
Total service department costs allocated:
Etching
Finishing

$224,083
$73,917

DLH
Etching = $ 40000
Finishing = $ 160000
Overhead Rate per Hour
Etching = $ 10.602
Finishing = $ 2.462
2. Step down method
Total service department costs allocated:
Etching = $
Finishing
DLH
Etching = $ 40000

Finishing = $ 160000

Overhead Rate per Hour

Etching = $9.647
Finishing = $ 2.70
Exercise 17-27
1. The joint cost allocated to CBL is $180,000
2. The joint cost allocated to MSB is $75,000.

3. $ 75000, $ 225000
Cost per unit = $ 5.31 (rounded)
4. The contribution would decrease by $80,000 if the mine support braces are not
processed further

Problem 17-28
1. Plantwide overhead rate
$ 20.55 per DLH
2. a. $ 2880, $ 800, $ 320
b. $ 32760, $ 23760, $ 25680
c. $ 37.44 (MH) $ 11.88 (DLH), $ 17.12 (DLH)

Problem 17-29
1.
$ 818,550
545,700
335,750
$1,700,000

(The figure should be $ 1,400,000 instead of $ 1,700,000 as joint cost)

2.
Total cost
Cost per gallon (rounded) ........................

$1,692,550
$2.42

$1,361,700
$3.89

$395,750
$2.33

(The figure should be $ 1,400,000 instead

of $ 1,700,000 as joint cost)

Biondi Industries should sell PST-4

at the split-off point
Per gallon gain (loss) of further processing
= $ (.13)

Problem 17-30
1. $15000 and $ 9000
2. $ 60000
3. $ 37800, $ 12000, $ 10200

Problem 17-31
2. Inventory Value
VX-4 = $ 24300 , HD-10 = $ 123500
3. Xian Chemicals should continue to process HD-10 beyond the split-off point, since
the incremental revenue is $.50 greater per gallon than the incremental cost.

Problem 17-32

1. The joint cost allocated to Compod is $150,000.

2. The joint cost allocated to Ultrasene is $130,000.
3. A. Additional processing costs have no effect on the physical-units method of
allocation. The joint cost allocated to Ultrasene is $100,000, as calculated in
requirement (1).
B. Net-realizable-value method: The joint cost allocated to Compod is $142,500.

4. Incremental loss per gallon from further processing into Compodalene = $ (.06)
Conclusion: Do not process Compod into Compodalene
6.It is preferable to sell Compod than to sell Compodalene.
Contribution to the joint production cost, fixed costs,
and profit = $ 1.84
Problem 17-33

Service department costs allocated to Etching ...............

Service department costs allocated to Finishing ............
Overhead rate per hour (total overhead DLH)
Etching = $ 9.80
Finishing = $ 2.663

Problem 17-34

$192,000
106,000

1. $29,705 + $56,797 = $86,502; differs from the total variable cost ($86,500) because of
cumulative rounding error.
2. $111,582 + $151,918 = $263,500
3. $141287 + $208715 = $350002
Differs from the total cost to be allocated ($350,000) due to cumulative rounding
error in the allocation of the variable costs.
Problem 17-35
1. $ 264600
2. $ 52,000
$ 31,000
$ 17,000
Total = $ 1,00,000
3. $ 30160
$ 17980
$ 9860
Problem 17-36
1. Total Joint Cost = $ 2,10,000 for a 10,000 batch
2. a. $ 168,000 + $ 42000 = $ 210000
b. $ 140000 + $ 70000 = $ 210000
c. $ 126000 + $ 84000 = $ 210000
3. Conclusion: The Kryptite should not be processed further into Omega.
Incremental loss per pound = $ (11)