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Chapter 2.3, Costing system, BEC212885, BEC213886, FAR217154, FAR217489 -…
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BEC212885
Cotton Company has two service departments and three operating departments. In allocating service department costs to the operating departments, which of the following three methods (direct, step-down, reciprocal) will result in the same amount of service department costs being allocated to each operating department, regardless of the order in which the service department costs are allocated?
Under direct and reciprocal method, the service departments cost is allocated to the operating departments and is not affected by the order of allocation. In case of step-down method, the service department cost is allocated to other service departments before allocating it to the operating departments. The service department with the highest cost is allocated first to other service and operating departments based on the relative level of the apportionment. These first allocations change the proportions of total constituted by each department.
Thus, direct and reciprocal methods result in the same amount of service department cost being allocated to each operating department regardless of the order of the allocation.
BEC213886
Which of the following is correct for calculation of equivalent units of production under process costing?
If costs are incurred at the beginning of the process, partially complete units are considered as 100% complete for that cost.
If the costs are incurred at a particular point of the process (say 30% level), then partially complete units are considered to be zero until they are 30% complete. The 20% complete units are considered zero equivalent units.
If the costs are incurred at the end of the process, partially complete units are considered zero throughout the process and considered 100% complete only when the process is complete.
If costs are incurred evenly throughout the process, units which are 30% complete are always considered 30% complete for the specific costs.
The pattern of incurrence of costs through the process is and its impact of equivalent units is same in case of both raw material and conversion costs.
FAR217154
A junior accountant is looking for your help. Using a 360 day per year, which of the following would be least relevant to calculate inventory conversion period?
Inventory conversion period is average number of days needed to convert inventory to sales and it can be calculated using any of the below formulas:
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FAR217489
Maurice Company transfers a participating interest in a financial asset with a carrying amount of $200 and a fair value of $300 to a trust. However, Maurice Company retains a participating interest in the entire financial asset with a fair value of $120 and receives cash of $180. What is the amount of gain to be recorded on the sale of the financial assets?
As Maurice Company retains participating interest in the financial asset, the carrying amount of the participating interest sold to the trust would be derecognized from the financial assets on its balance sheet and then a gain on sale would be recognized which is the difference between the consideration received and the allocated amount to the interest transferred.
Carrying amount of the participating interest sold to trust = (60 percent or $180 / $300 of the carrying amount) = $200 x 0.60 = $120.
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