BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.

 BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.

Required:

a. Allocate the cost of the service departments to the operating departments using the direct method.

b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration.

c. Allocate the cost of the service departments to the operating departments using the reciprocal method.

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Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded:

 Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments (Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded:

Required:

Allocate the service department costs to the two operating departments using the reciprocal method.

Explanation

The key to this problem is to recognize that Administration provides no service to either of the other two service departments and that Processing only provides services to Administration and not to Maintenance. Therefore, there are no reciprocal services between Administration and the other service departments or between Processing and Administration.

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Blasto, Inc., operates several mines. At one, a typical batch of ore run through the plant yields three products: lead, copper, and manganese.

 Blasto, Inc., operates several mines. At one, a typical batch of ore run through the plant yields three products: lead, copper, and manganese. At the split-off point, the intermediate products cannot be sold without further processing. The lead from a typical batch sells for $42,000 after incurring additional processing costs of $11,550. The copper is sold for $90,000 after additional processing costs of $17,500, and the manganese yield sells for $61,000 but requires additional processing costs of $18,950. The joint costs of processing the raw ore, including the cost of mining, are $110,000 per batch.

Required:

Use the estimated net realizable value method to allocate the joint processing costs.

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Fisher Chemicals processes a liquid into three outputs: Sigma, Tau, and Upsilon. Sigma accounts for 59 percent of the net realizable value at the split-off point, Tau accounts for 32 percent, and Upsilon accounts for the balance.

Fisher Chemicals processes a liquid into three outputs: Sigma, Tau, and Upsilon. Sigma accounts for 59 percent of the net realizable value at the split-off point, Tau accounts for 32 percent, and Upsilon accounts for the balance. The joint costs total $637,000. If Upsilon is accounted for as a by-product, its $66,000 net realizable value at split-off is credited to the joint manufacturing costs using method 1 described in the text, which credits the by-product’s net realizable value as a reduction in the joint costs.
 

Required:

a-1. What are the allocated joint costs for the three outputs, if Upsilon is accounted for as a joint product?

a-2. What are the allocated joint costs for the three outputs, if Upsilon is accounted for as a by-product?

Explanation

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