Question

4. Support Department Cost Allocation—Reciprocal Services Method

Blue Africa Inc. produces laptops and desktop computers. The company’s production activities mainly occur in what the company calls its Laser and Forming departments. The Cafeteria and Security departments support the company’s production activities and allocate costs based on the number of employees and square feet, respectively. The total cost of the Security Department is $251,000. The total cost of the Cafeteria Department is $594,000. The number of employees and the square footage in each department are as follows:

	Employees		Square Feet
Security Department	10		580
Cafeteria Department	28		2,400
Laser Department	40		4,000
Forming Department	50		1,600

Using the reciprocal services method of support department cost allocation, determine the total costs from the Security Department that should be allocated to the Cafeteria Department and to each of the production departments.

	Cafeteria Department		Laser Department		Forming Department
Security Department cost allocation	$		$		$

5. Joint Cost Allocation—Net Realizable Value Method

Nature's Garden Inc. produces wood chips, wood pulp, and mulch. These products are produced through harvesting trees and sending the logs through a wood chipper machine. One batch of logs produces 20,304 cubic yards of wood chips, 14,100 cubic yards of mulch, and 9,024 cubic yards of wood pulp. The joint production process costs a total of $32,000 per batch. After the split-off point, wood chips are immediately sold for $25 per cubic yard while wood pulp and mulch are processed further. The market value of the wood pulp and mulch at the split-off point is estimated to be $22 and $24 per cubic yard, respectively. The additional production process of the wood pulp costs $5 per cubic yard, after which it is sold for $30 per cubic yard. The additional production process of the mulch costs $4 per cubic yard, after which it is sold for $32 per cubic yard.

Allocate the joint costs of production to each product using the net realizable value method.

Joint Product	Allocation
Wood chips	$
Wood pulp
Mulch
Totals	$

Answer 1

- 4 Security dept Total Cost $251000 Basis of allocation: Square fects. & Allocation: Dept. So. feets Allocations Cafeteria 2600 Laser Louo Forming 15,300 (251000 x 2600/8000) 125,500 (251000 x 6000/8000) 50, 20 (251000 v1600/800u) IGUO gooo 25100c

cost cost (6) ($) Oprocess off point 5 Allocation on the basis of NRV : Product Sales sales further NRV Joint cost Revenue Revenue after -process @split. Allocated further (CI) Co Co Cell) 19,400 wood 507600 507600 chips T 507600x32oool! [2030 4x28] Malch 451, 400 - 56400 394,800 11,200 [14100832) [14100 x4) (b-d) If 894800 rond L1128000 Pulp 27070 45120 245600 6400 [9024x30] [9026x5 cbd) 228700 1128ovo 11,28,000 32000 L 1128000*32000)