Managerial Accounting 1B Ch22

Managerial Accounting 1B

Financial and Managerial Accounting

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Chapter 22

1. Exercise 22-1 Departmental expense allocations L.O. C1

Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Indirect Expense


Allocation Base




Number of employees



Square feet occupied



Value of assets in use




Departmental data for the company’s recent reporting period follow.



Square Feet

Asset Values
























Use this information to allocate each of the three indirect expenses across the four departments.(Omit the “$” & “%” signs in your response.)


Prepare a summary table that reports the indirect expenses assigned to each of the four departments.(Omit the “$” sign in your response.)


Exercise 22-12B Joint real estate costs assigned L.O. C4

Tidy Home Properties is developing a subdivision that includes 300 home lots. The 225 lots in the Garden section are below a ridge and do not have views of the neighboring gardens and hills; the 75 lots in the Premier section offer unobstructed views. The expected selling price for each Garden lot is $50,000 and for each Premier lot is $100,000. The developer acquired the land for $2,500,000 and spent another $2,000,000 on street and utilities improvements.

Assign the joint land and improvement costs to the lots using the value basis of allocation and determine the average cost per lot. (Omit the “$” sign in your response.)

Exercise 22-13B Joint product costs assigned L.O. C4

[The following information applies to the questions displayed below.]

Pike Seafood Company purchases lobsters and processes them into tails and flakes. It sells the lobster tails for $20 per pound and the flakes for $15 per pound. On average, 100 pounds of lobster are processed into 57 pounds of tails and 24 pounds of flakes, with 19 pounds of waste. Assume that the company purchased 3,000 pounds of lobster for $6.00 per pound and processed the lobsters with an additional labor cost of $1,800. No materials or labor costs are assigned to the waste. The company sold 1,510 pounds of tails and 710 pounds of flakes.

3.Exercise 22-13B Part 1


What is the allocated cost of the sold items? The company allocates joint costs on a value basis.(Round your cost per pound to 2 decimal places. Omit the “$” sign in your response.)

Cost of goods sold

Lobster tails

Lobster flakes


Exercise 22-13B Part 2


What is the allocated cost of the ending inventory? The company allocates joint costs on a value basis.(Round your cost per pound to 2 decimal places. Omit the “$” sign in your response.)

Cost of the ending inventory

Lobster tails

Lobster flakes

Problem 22-1A Allocation of building occupancy costs to departments L.O. P1

[The following information applies to the questions displayed below.]

City Bank has several departments that occupy both floors of a two-story building. The departmental accounting system has a single account, Building Occupancy Cost, in its ledger. The types and amounts of occupancy costs recorded in this account for the current period follow.




Interest—Building mortgage


Taxes—Building and land


Gas (heating) expense


Lighting expense


Maintenance expense


Total occupancy cost



The building has 4,000 square feet on each floor. In prior periods, the accounting manager merely divided the $64,000 occupancy cost by 8,000 square feet to find an average cost of $8 per square foot and then charged each department a building occupancy cost equal to this rate times the number of square feet that it occupied.

Laura Diaz manages a first-floor department that occupies 1,000 square feet, and Lauren Wright manages a second-floor department that occupies 1,800 square feet of floor space. In discussing the departmental reports, the second-floor manager questions whether using the same rate per square foot for all departments makes sense because the first-floor space is more valuable. This manager also references a recent real estate study of average local rental costs for similar space that shows first-floor space worth $30 per square foot and second-floor space worth per square foot (excluding costs for heating, lighting, and maintenance).


Problem 22-1A Part 1



Allocate occupancy costs to the Diaz and Wright departments using the current allocation method.(Omit the “$” sign in your response.)



Diaz’s Dept.

Wright’s Dept.


Problem 22-1A Part 2


Allocate the depreciation, interest, and taxes occupancy costs to the Diaz and Wright departments in proportion to the relative market values of the floor space. Allocate the heating, lighting, and maintenance costs to the Diaz and Wright departments in proportion to the square feet occupied (ignoring floor space market values).(Round your cost per Sq. ft rate to 2 decimal places and final answers to the nearest whole number. Omit the “$” sign in your response.)



Diaz’s Dept.


Wright’s Dept.



Problem 22-3A Departmental income statements; forecasts L.O. P1

Time-To-See Company began operations in January 2011 with two operating (selling) departments and one service (office) department. Its departmental income statements follow.

Time-To-See plans to open a third department in January 2012 that will sell paintings. Management predicts that the new department will generate $35,000 in sales with a 55% gross profit margin and will require the following direct expenses: sales salaries, $8,000; advertising, $800; store supplies, $500; and equipment depreciation, $200. It will fit the new department into the current rented space by taking some square footage from the other two departments. When opened the new painting department will fill one-fifth of the space presently used by the clock department and one-sixth used by the mirror department. Management does not predict any increase in utilities costs, which are allocated to the departments in proportion to occupied space (or rent expense). The company allocates office department expenses to the operating departments in proportion to their sales. It expects the painting department to increase total office department expenses by $7,000. Since the painting department will bring new customers into the store, management expects sales in both the clock and mirror departments to increase by 7%. No changes for those departments’ gross profit percents or their direct expenses are expected except for store supplies used, which will increase in proportion to sales.


Prepare departmental income statements that show the company’s predicted results of operations for calendar year 2012 for the three operating (selling) departments and their combined totals. (Input all amounts as positive values. Round your percentage values to 1 decimal place, intermediate and final answers to the nearest whole dollar amount. Omit the “$” sign in your response.)

rev: 05_12_2012

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