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Q 1 The accountant for Kadhim Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected:
Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs SAR50,000 SAR45,000 SAR275,000 SAR300,000
Number of employees 15 10 150 250
Square feet 1,500 2,000 3,500 4,000
a-If the direct method is used, calculate maintenance costs allocated to the cutting department?
b-If the direct method is used, calculate the total cost (including allocations) for the
c-Assume you are working for the organization and are requested to allocate support
department costs. Describe how you would choose the best method?
( 2 marks)
Q 2 Khaleel Compagny produces three products A, B and C. During the year the joint costs of processing the coffee were SAR270,000. Production and sales value information were as follows:
Product Units at Split-Off Separable Costs Selling Price
A 300,000 SAR9 per unit SAR5.00 per unit SAR32 per unit
B 200,000 SAR8 per unit SAR3.00 per unit SAR30 per unit
C 400,000 SAR7 per unit SAR2.00 per unit SAR20 per unit
Chose one method to allocate joint costs and allocate the joint costs. (1 mark)
Q 3 In a recent accounting period, Ismail Company experienced a SAR30,000 unfavorable variance for variable production costs. Explain the meaning of an unfavorable variance. Suggest two possible (1 mark)