Question

1.

Joint Cost Allocation—Market Value at Split-off Method

Man O’Fort Inc. produces two different styles of door handles, standard and curved. The door handles go through a joint production molding process costing $28,000 per batch and producing 2,000 standard door handles and 1,000 curved door handles at the split-off point. Both door handles undergo additional production processes after the split-off point, but could be sold at that point: the standard style for $2 per door handle and the curved style for $1 per door handle.

Determine the amount of joint production costs allocated to each style of door handle using the market value at split-off method.

Joint Product	Allocation
Standard door handle	$
Curved door handle
Totals	$

2. Support Department Cost Allocation—Direct Method

Yo-Down Inc. produces yogurt. Information related to the company’s yogurt production follows:

	Production Department 1		Production Department 2		Production Department 3
Support Department 1 cost driver	1,000		100		900

Support Department 1’s costs total $140,000. Using the direct method of support department cost allocation, determine the costs from Support Department 1 that should be allocated to each production department.

	Production Department 1		Production Department 2		Production Department 3
Support Department 1 cost allocation	$		$		$

Answer 1

Solution Question # 1 Allocation of Joint cost using market value at split off point Selling price at split off Market value Relative Market value #of units produced Allocated Joint Product at Split-off Joint cost point point $2.00 80.00% $28,000 x 80 % $28,000 x 20 % $22,400 $5,600 $28,000 Standard door handle $4,000 $1,000 $5,000 2,000 Curved door handle 1,000 $1.00 20.00% 100.00% Totals Joint Product Standard door handle Allocation $22,400 $5,600 Curved door handle Totals $28,000 Question# 2 Support Department Cost Allocation-Direct Method Total support department 1's cost $140,000 Total Support Department 1 cost driver (1,000 100+900) 2000 Under direct method, Service department cost is directly allocated to the production departments using the allocation base. In this method, no cost from one service department to another service department is allocated. This method is the simple method and ignores the services provided by one service department to another service department Service Production Production Production Department Department Department Department 2 1 1 3 Service Department 1 cost Allocation of Service Department 1 cost to: $140,000 ($70,000) ($7,000) ($63,000) $0 $70,000 Production Dept. 1 ($140,000 x 1000/2,000) Production Dept. 2 ($140,000 x 100/2,000) $7,000 $63,000 $63,000 Production Dept. 3 ($140,000 x 900/2,000) $7,000 $70,000 Totals Production Production Production Department Department Department 3 1 2. $70,000 Support Department 1 cost allocation $7,000 $63,000