Deck 8: Measuring and Assigning Support Department Costs

Question 1

A support department provides internal services for both operating and other support departments.

Answer 1

True

Question 2

Single-rate allocations are unlikely to reflect actual resource usage.

Answer 2

True

Question 3

The step-down method does not recognize services provided between support departments.

Answer 3

False

Question 4

The direct method acknowledges services provided by one support department to another support department.

Question 5

Managers often allocate support department costs as a means of motivating employees.

Question 6

The calculations for the reciprocal method are more complex than for other support department cost allocation methods.

Question 7

When managers use dual-rate allocation, they frequently identify cost drivers for fixed cost pools to identify resource flows more accurately.

Question 8

The step-down method allocates support department costs in a cascading manner.

Question 9

The direct method uses each operating department's allocation rate to allocate costs to a support department.

Question 10

Single-rate allocation methods use only one cost pool and one base to allocate both fixed and variable costs.

Question 11

Support department costs are generally allocated to inventory when preparing financial statements under generally accepted accounting principles.

Question 12

A properly designed accounting system insures that costs are assigned with complete accuracy to support and operating department cost pools.

Question 13

Under dual-rate allocation, costs are separated into support and operating pools before being allocated.

Question 14

The direct method allocates the cost of support departments only to operating departments.

Question 15

Support department costs are always allocated to individual units of products or services.

Question 16

The step-down method allocates one support department's cost at a time.

Question 17

The reciprocal method reflects only part of the interactions between support departments.

Question 18

Allocating support department costs has some similarities to activity-based costing, for example costs are traced and allocated to cost pools.

Question 19

Managers need to clarify their reasons for allocating support department costs before establishing cost pools.

Question 20

Typical support departments include accounting and human resources.

Question 21

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the step-down method is used and maintenance is allocated first, cafeteria costs allocated to packaging will be

A) $34,704
B) $55,757
C) $28,125
D) $54,792

Question 22

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
How much would be charged to department A if actual costs were allocated based on number of employees?

A) $36,000
B) $38,400
C) $30,000
D) $34,615

Question 23

Allocations using the direct method are always high quality because no judgments are made.

Question 24

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the direct method is used, the total cost (including allocations) for the packaging department will be

A) $26,667
B) $355,250
C) $54,792
D) $354,792

Question 25

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the reciprocal method is used, the total amount that will be allocated for maintenance is

A) $52,022
B) $55,952
C) $50,211
D) $57,034

Question 26

Allocation of support department costs can encourage efficient use of the support department resources.

Question 27

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the direct method is used, maintenance costs allocated to the cutting department will be

A) $15,909
B) $23,333.33
C) $20,520
D) $43,750

Question 28

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the step-down method is used and maintenance is allocated first, the total cost allocated to the cutting department will be

A) $55,757
B) $39,243
C) $20,822
D) $40,208

Question 29

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:
If the direct method were used, how much total cost would be allocated to operating department A?

A) $60,500
B) $55,804
C) $58,500
D) $74,196

Question 30

"Perceived fairness" is sometimes used as a criterion for allocating support department costs to operating departments.

Question 31

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
How much would be charged to department B if budgeted costs were allocated based on number of employees?

A) $45,000
B) $44,800
C) $43,600
D) $40,385

Question 32

Use the following information for the next 2 questions.
Cervantes Industries provides an in-house cafeteria for production and administrative employees. This service costs $25,000 per month, plus $3 per meal served. The company has 800 production employees and 400 administrative employees. During the past month 5,500 meals were served to production employees and 2,000 to administrative.
The amount allocated to the operating department using a dual-rate basis with the fixed cost allocation based on number of employees is

A) $33,167
B) $31,683
C) $24,833
D) $41,500

Question 33

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:
If the direct method were used, how much computer cost would be allocated to the utilities department?

A) $0
B) $18,750
C) $11,250
D) $ 8,250

Question 34

Use the following information for the next 6 questions.
The accountant for Milton, 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:
If the direct method is used, maintenance costs allocated to the cafeteria will be

A) $28,571.43
B) $15,909
C) $10,000
D) $0

Question 35

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:
If the step-down method was used and utilities are allocated first, how much total cost would be allocated to operating department B?

A) $76,676
B) $44,500
C) $53,324
D) $74,196

Question 36

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:
If the step-down method was used and utilities allocated first, how much computer cost would be allocated to the utilities department?

A) $0
B) $18,200
C) $13,750
D) $8,250

Question 37

Use the following information for the next 2 questions.
Cervantes Industries provides an in-house cafeteria for production and administrative employees. This service costs $25,000 per month, plus $3 per meal served. The company has 800 production employees and 400 administrative employees. During the past month 5,500 meals were served to production employees and 2,000 to administrative.
The amount of cost allocated to the administrative department using actual meals served as the basis is

A) $16,675
B) $12,667
C) $14,325
D) $18,500

Question 38

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
The CEO of the company described above wants to gather information for a decision to outsource the HR function. Which of the following allocation methods would provide useful information?

A) A job costing system
B) A dual rate support department allocation system
B) A process costing system
C) A single rate support department allocation system

Question 39

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:
If the direct method were used, how much computer cost would be allocated to operating department B?

A) $11,250
B) $25,667
C) $26,471
D) $41,250

Question 40

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
Which of the following is a disadvantage for using budgeted costs instead of actual costs for support department cost allocation?

A) Managers know their exact costs in advance and have no incentive to minimize use of services
B) Budgeted costs do not reflect current usage, and so managers may overuse support services
C) Allocated support department costs are not under the manager's control
D) Support departments might be cut back because services are likely to be underused

Question 41

Use the following information for the next 3 questions
Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected:
If the direct method is used, the fraction of engineering costs allocated to the finishing department will be

A) 20/55
B) 20/100
C) 20/70
D) 20/85

Question 42

Use the following information for the next 4 questions. Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow:
If the step-down method is used and the largest department (in terms of direct costs) is allocated first, the total cost allocated to assembly will be

A) $32,200
B) $39,933
C) $29,317
D) $24,500

Question 43

Use the following information for the next 4 questions. Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow:
If the reciprocal method is used, the total cost of maintenance will be

A) $32,500
B) $22,500
C) $27,175
D) $31,850

Question 44

Use the following information for the next 4 questions. The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data:
If the reciprocal method is used, the total costs allocated to the operating departments will be

A) $61,168
B) $79,250
C) $41,117
D) $90,000

Question 45

Use the following information for the next 4 questions.
The accountants for Brock, Inc. are preparing the operating departments overhead budgets. The maintenance department direct costs are $12,000, and the administration department direct costs are $54,000. The following data have been collected about use of services: (based on number of employees)
Using the reciprocal method, the allocation from the maintenance department to Op1 department is

A) $6,000
B) $13,600
C) $13,421
D) $12,000

Question 46

Use the following information for the next 3 questions
Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected:
If the step-down method is used and engineering costs are allocated first, the fraction of engineering costs allocated to the assembly department will be

A) 35/55
B) 35/100
C) 35/70
D) 35/85

Question 47

Use the following information for the next 2 questions.
Cope, Inc. has the following costs and usage data for its support departments:
If the step-down method is used, and the order of allocation is department B first, then A, and finally C, the amount of support department A costs allocated to operating department 2 will be

A) $15,000
B) $23,250
C) $24,000
D) $18,600

Question 48

Use the following information for the next 4 questions.
Quinlan, Inc. has two support departments (maintenance and personnel) and two operating departments (tables and chairs). The maintenance department provides more services to the personnel department than the personnel department provides to maintenance. Once the support department costs have been allocated to the operating departments, each operating department allocates its total costs to units produced.
Assume the step-down method is used. The amount of cost allocated from personnel to the table department is

A) $11,200
B) $12,503
C) $8,938
D) $12,600

Question 49

Use the following information for the next 4 questions.
The accountants for Brock, Inc. are preparing the operating departments overhead budgets. The maintenance department direct costs are $12,000, and the administration department direct costs are $54,000. The following data have been collected about use of services: (based on number of employees)
Use the reciprocal method. The cost of administration department after support cost allocations but before allocation to the operating departments is

A) $58,800
B) $60,800
C) $60,000
D) $59,368

Question 50

Use the following information for the next 4 questions. Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow:
If the reciprocal method is used, the cost of personnel allocated to maintenance will be

A) $0
B) $10,000
C) $9,350
D) $4,675

Question 51

Use the following information for the next 2 questions.
Cope, Inc. has the following costs and usage data for its support departments:
If the step-down method is used, the total cost of support department C will be

A) $30,000
B) $37,750
C) $42,000
D) $49,750

Question 52

Use the following information for the next 4 questions. The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data:
If the reciprocal method is used, the equation representing the total cost of the cafeteria is

A) Cafeteria = $35,000
B) Cafeteria = $35,000 + (0.15 × computer cost)
C) Cafeteria = $35,000 + (0.10 × computer cost)
D) Cafeteria = $35,000 + 0.10 × ($55,000 + 0.10 × computer costs)

Question 53

Use the following information for the next 4 questions.
The accountants for Brock, Inc. are preparing the operating departments overhead budgets. The maintenance department direct costs are $12,000, and the administration department direct costs are $54,000. The following data have been collected about use of services: (based on number of employees)
Assume the reciprocal method. The equation to express the full cost of the maintenance department is

A) Maintenance = $12,000 + (0.50 × Administration)
B) Maintenance = $12,000 + (0.20 × $54,000)
C) Maintenance = $12,000 + (0.20 × Administration)
D) Maintenance = $12,000 + (0.25 × $54,000)

Question 54

Use the following information for the next 4 questions. Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow:
If the reciprocal method is used, the cost function representing the total cost of Personnel will be

A) $46,750 + (0.2 × maintenance cost)
B) $46,750 + (0.4 × maintenance cost)
C) $46,750 + (0.1 × maintenance cost)
D) $46,750 + (0.1 × maintenance cost) + (0.2 × personnel cost)

Question 55

Use the following information for the next 4 questions.
Quinlan, Inc. has two support departments (maintenance and personnel) and two operating departments (tables and chairs). The maintenance department provides more services to the personnel department than the personnel department provides to maintenance. Once the support department costs have been allocated to the operating departments, each operating department allocates its total costs to units produced.
Assume the step-down method is used. The amount of cost allocated from personnel to maintenance is

A) $1,500
B) $1,687.50
C) $9,000
D) $0

Question 56

Use the following information for the next 4 questions.
Quinlan, Inc. has two support departments (maintenance and personnel) and two operating departments (tables and chairs). The maintenance department provides more services to the personnel department than the personnel department provides to maintenance. Once the support department costs have been allocated to the operating departments, each operating department allocates its total costs to units produced.
Assume the direct method is used. The proportion of personnel's costs allocated to the table department is

A) 1/2
B) 4/7
C) 7/15
D) 1/3

Question 57

Use the following information for the next 4 questions. The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data:
If the reciprocal method is used, the equation representing the total cost of the computer department is

A) Computer costs = $55,000 + (0.15 × cafeteria cost)
B) Computer costs = $55,000 + (0.10 × cafeteria cost)
C) Computer costs = $55,000
D) Computer costs = $55,000 + 0.10 × ($55,000 + 0.10 × computer cost)

Question 58

Use the following information for the next 3 questions
Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected:
If the reciprocal method is used, what is the amount of engineering cost that will be allocated to all of the other departments?

A) $21,456
B) $24,330
C) $26,432
D) $25,331

Question 59

Use the following information for the next 4 questions.
Quinlan, Inc. has two support departments (maintenance and personnel) and two operating departments (tables and chairs). The maintenance department provides more services to the personnel department than the personnel department provides to maintenance. Once the support department costs have been allocated to the operating departments, each operating department allocates its total costs to units produced.
Assume the direct method is used. The cost per unit in the chair department would be

A) $20.275 per chair
B) $23.509 per chair
C) $25.147 per chair
D) $25.900 per chair

Question 60

Use the following information for the next 4 questions. The managers of Conch, Inc. want to determine the most accurate allocation of support department costs to operating departments. To make this allocation, the accounting department has collected the following data:
If the reciprocal method is used, the computer costs allocated to operating department 1 will be

A) $47,031
B) $27,500
C) $30,584
D) $22,000

Question 61

To decide the type and number of cost pools to use for support cost allocation, managers should consider the

A) Reasons for allocating support department costs
B) Ability of operating departments to bear the costs
C) Method they plan to use for the allocation
D) Allocation base

Question 62

The terms "direct," "step-down," and "reciprocal" are associated with which part of allocating support department costs?

A) Clarifying the purpose of the allocation
B) Choosing and applying a method
C) Allocating costs to units of product or service
D) Choosing an allocation base

Question 63

Which pair below best matches a support department with an appropriate allocation base?

A) Administration, square feet occupied
B) Housekeeping, number of requisitions for supplies
C) Employee training, number of employees
D) Accounting, number of general ledger accounts

Question 64

Which departments in an organization provide services internal to the organization?

A) Non-value-added departments
B) Value-added departments
C) Support departments
D) Operating departments

Question 65

Which of the following types of organizations can have both operating and support departments? I. Manufacturing
II) Service
III) Retail
IV) Governmental

A) I and II only
B) II and III only
C) I and IV only
D) I, II, III, and IV

Question 66

Managers need allocation bases when they I. Allocate support department costs to operating departments
II) Trace direct costs to products
III) Trace direct labor to products

A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question 67

When preparing financial statements under generally accepted accounting principles, support department costs are generally classified as

A) Product costs
B) Period costs
C) Nonoperating costs
D) Variable costs

Question 68

Under the direct method

A) A support department's costs are allocated only to final operating department users
B) A support department's costs are allocated only to other support departments
C) The costs of the support departments are allocated sequentially
D) The costs of the support departments are allocated in order of their magnitude

Question 69

Which of the following steps is not always part of allocating support department costs?

A) Allocating costs to units of product or service
B) Clarifying the purpose of the allocation
C) Choosing an allocation base
D) Assigning costs to cost pools

Question 70

When allocating support department costs, managers must identify cost pools. The choice of cost pools is

A) Determined by generally accepted accounting principles
B) Not influenced by the allocation base
C) Influenced by the design of the accounting information system
D) Not important, because all support department costs will eventually be allocated anyway

Question 71

Which of the following is least likely to be a reason for allocating support department costs?

A) For internal reporting purposes
B) To motivate managers
C) To assist in strategic or operating decisions
D) For financial statements prepared according to GAAP

Question 72

Support departments provide services

A) That support customers
B) Only for other support departments
C) For departments that interact with external customers
D) Only for administrative functions

Question 73

The process of allocating support department costs begins with

A) Choosing an allocation method
B) Clarifying the purpose of the allocation
C) Establishing cost pools
D) Choosing an allocation base

Question 74

All of the following are likely to be support departments in a CPA firm except

A) Reception
B) Word processing
C) Advertising
D) Income tax preparation

Question 75

Some organizations allocate support department costs to I. Provide managers incentives for efficient production of operating services
II) Provide managers incentives for appropriate and effective use of support services
III) Monitor managers' use and production of support services

A) I and III only
B) I and II only
C) II and III only
D) I, II, and III

Question 76

Use the following information for the next 4 questions.
The accountants for Brock, Inc. are preparing the operating departments overhead budgets. The maintenance department direct costs are $12,000, and the administration department direct costs are $54,000. The following data have been collected about use of services: (based on number of employees)
Using the reciprocal method, the total costs allocated to the three operating departments from the support departments is

A) $66,000
B) $84,000
C) $59,368
D) $60,000

Question 77

Which departments in an organization produce services for external clients?

A) Support departments
B) Operating departments
C) Dual-rate departments
D) Value-added departments

Question 78

In a discount department store, which of the following is most likely a support department?

A) Housewares
B) Furniture
C) Purchasing
D) Appliances

Question 79

Under the step-down method of allocation

A) The costs for the support department with the smallest total are allocated first
B) When the second support department's costs are allocated, they are allocated to each of the other departments, but not to the first support department that was allocated.
C) Once a support department's costs have been allocated, it is available for an additional allocation
D) Support department costs are allocated solely to operating departments

Question 80

Which of the following is the most appropriate cost allocation base for a purchasing department?

A) Time spent speaking with other department heads on the telephone
B) Hours of training provided to purchasing department employees
C) Allocated costs of other departments
D) Number of purchase requisitions