ACC 561: EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods Solution

ACC 561

Axia College of University of Phoenix (UoP)

Introduction to Management Accounting

Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to Management Accounting (14th ed.). Upper Saddle River, New Jersey: Pearson-Prentice Hall.


3. Individual Assignment: Text Exercises

• Complete the following Problem Sets from the text. Show your work.

EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods, on p. 584

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EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods
Goal: Create an Excel spreadsheet to allocate costs using the direct method and the stepdown
method. Use the results to answer questions about your findings.
Scenario: Antonio Cleaning has asked you to help them determine the best method for
allocating costs from their service departments to their producing departments. Additional
background information for your spreadsheet appears in Fundamental Assignment Material
12-B2. Exhibit 12-4 on page 532 illustrates the types of calculations that are used for
allocating costs using the direct method and the step-down method.

When you have completed your spreadsheet, answer the following questions:
1. What are the total costs for the Residential department using the direct method?
What are the total costs for the Commercial department using the direct method?
2. What are the total costs for the Residential department using the step-down method?
3. What are the total costs for the Commercial department using the step-down method?
4. Which method would you recommend that Antonio Cleaning use to allocate their
service departments’ costs to their producing departments? Why?

Step-by-Step:
1. Open a new Excel spreadsheet.
2. In column A, create a bold-faced heading that contains the following:
Row 1: Chapter 12 Decision Guideline
Row 2: Dallas Cleaning
Row 3: Cost Allocations from Service Departments to Producing Departments
Row 4: Today’s Date
3. Merge and center the four heading rows across columns A through H.
4. In row 7, create the following bold-faced, center-justified column headings:
Column B: Personnel
Column C: Administrative
Column D: Residential
Column E: Commercial
Column F: Total Res/Comm
Column G: Total Admin/Res/Comm
Column H: Grand Total
5. Change the format of the column headings in row 7 to permit the titles to be displayed
on multiple lines within a single cell.
Alignment tab: Wrap Text: Checked
Note: Adjust column widths so that headings use only two lines.
Adjust row height to ensure that row is same height as adjusted headings.
6. In column A, create the following row headings:
Row 8: Direct Department Costs
Row 9: Number of Employees
Skip 2 rows
Note: Adjust the width of column A to 27.14.
7. In column A, create the following bold-faced, underlined row heading:
Row 12: Direct Method:
8. In column A, create the following row headings:
Row 13: Direct Department Costs
Row 14: Personnel Allocation
Row 15: Administrative Allocation
Row 16: Total Costs
Skip 2 rows
9. In column A, create the following bold-faced, underlined row heading:
Row 19: Step-down Method:
10. In column A, create the following row headings:
Row 20: Direct Department Costs
Row 21: Step 1—Personnel Allocation
Row 22: Step 2—Administrative Allocation
Row 23: Total Costs
11. Use data from Fundamental Assignment 12-B2 to enter the amounts in columns B
through E for rows 8, 9, 13, and 20.
12. Use the appropriate calculations to do the totals in row 8 for columns F and H.
Use the appropriate calculations to do the totals in row 9 for columns F and G.
13. Use the appropriate formulas to allocate the costs from the service departments to the
producing departments using each of the methods.
14. Use the appropriate calculations to do the totals in columns B through E and in column H,
rows 16 and 23.
15. Format amounts in columns B through H, rows 8, 13, 16, 20, and 23 as
Number tab: Category: Accounting
Decimal: 0
Symbol: $
16. Format the amount in columns B through E, rows 14, 15, 21, and 22 as
Number tab: Category: Accounting
Decimal: 0
Symbol: None
17. Change the format of the total costs amounts in columns B through E, rows 16 and 23,
to display a top border, using the default line style.
Border tab: Icon: Top Border
18. Change the format of the amounts in row 9, columns B through G to center justified.

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ACC 561: 2-65 CVP and Break-Even Solution

ACC 561

Axia College of University of Phoenix (UoP)

Introduction to Management Accounting

Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to Management Accounting (14th ed.). Upper Saddle River, New Jersey: Pearson-Prentice Hall.


4. Individual Assignment: Practice Text Exercises

• Complete the following problem sets from the Introduction to Management Accounting text:

EXCEL Application Exercise, CVP and Break-Even, on p. 89

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EXCEL Application Exercise
2-65 CVP and Break-Even
Goal: Create an Excel spreadsheet to perform CVP analysis and show the relationship between price, costs, and break-even points in terms of units and dollars. Use the results to answer questions about your findings.
Scenario: Phonetronix is a small manufacturer of telephone and communications devices. Recently, company management decided to investigate the profitability of cellular phone production. They have three different proposals to evaluate. Under all the proposals, the fixed costs for the new phone would be $110,000. Under proposal A, the selling price of the new phone would be $99 and the variable cost per unit would be $55. Under proposal B, the selling price of the phone would be $129 and the variable cost would remain the same.
Under proposal C, the selling price would be $99 and the variable cost would be $49.
When you have completed your spreadsheet, answer the following questions:
1. What are the break-even points in units and dollars under proposal A?
2. How did the increased selling price under proposal B impact the break-even points in
units and dollars compared to the break-even points calculated under proposal A?
3. Why did the change in variable cost under proposal C not impact the break-even points
in units and dollars as significantly as proposal B did?
Step-by-Step:
1. Open a new Excel spreadsheet.
2. In column A, create a bold-faced heading that contains the following:
Row 1: Chapter 2 Decision Guideline
Row 2: Phonetronix
Row 3: Cost-Volume-Profit (CVP) Analysis
Row 4: Today’s Date
3. Merge and center the four heading rows across columns A through D.
4. In Row 7, create the following bold-faced, right-justified column headings:
Column B: Proposal A
Column C: Proposal B
Column D: Proposal C
Note: Adjust cell widths when necessary as you work.
5. In Column A, create the following row headings:
Row 8: Selling price
Row 9: Variable cost
Row 10: Contribution margin
Row 11: Contribution margin ratio
Skip a row
Row 13: Fixed cost
Skip a row
Row 15: Break-even in units
Skip a row
Row 17: Break-even in dollars
6. Use the scenario data to fill in the selling price, variable cost, and fixed cost amounts
for the three proposals.
7. Use the appropriate formulas from this chapter to calculate contribution margin,
contribution margin ratio, break-even in units, and break-even in dollars.
8. Format all amounts as:
Number tab: Category: Currency
Decimal places: 0
Symbol: None
Negative numbers: Red with parenthesis
9. Change the format of the selling price, contribution margin, fixed cost, and break-even
in dollars amounts to display a dollar symbol.
10. Change the format of both contribution margin headings to display as indented:
Alignment tab: Horizontal: Left (Indent)
Indent: 1
11. Change the format of the contribution margin amount cells to display a top border,
using the default line style.
Border tab: Icon: Top Border
12. Change the format of the contribution margin ratio amounts to display as a percentage
with two decimal places.
Number tab: Category: Percentage
Decimal places: 2
13. Change the format of all break-even headings and amounts to display as bold-faced.
14. Activate the ability to use heading names in formulas under Tools ? Options:
Calculation tab: Check the box: Accept labels in formulas
15. Replace the cell-based formulas with “word-based” equivalents for each formula used
in Proposal A.
Example: Contribution margin for proposal B would be:
= (‘Selling price’ ‘Proposal B’) - (‘Variable cost’ ‘Proposal B’)
Note: The tic marks used in the example help avoid naming errors caused by data having similar titles (i.e., “contribution
margin” and “contribution margin ratio”). The parentheses help clarify groupings.
Help: Ask the Answer Wizard about “Name cells in a workbook.”
Select “Learn about labels and names in formulas” from the right-hand panel.
16. Save your work to a disk, and print a copy for your files.

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