Deck 14: Allocation of Support-Department Costs, Common Costs and Revenues

Question 1

Benefits of the dual-rate method include:

A)information that leads to outsourcing decisions that benefit the organisation as a whole
B)variable costs that are transformed into fixed costs for user decision making
C)avoidance of expensive analysis for categorising costs as either fixed or variable
D)the low cost of implementation

Answer 1

A

Question 2

If costs are used as a basis for pricing,then charging user divisions for unused capacity could result in:

A)chaos.
B)confusion.
C)the downward demand spiral.
D)misallocations.

Answer 2

C

Question 3

Answer the following questions using the information below:
The Launceston Copy Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 200 000 to 300 000 copies:
Fixed costs per year $\quad \$ 40000$
Variable costs 3 cents (.03) per copy
Buageted long-nu usage in copies per year:
Marketing Department 75000 copies
Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies.

-If a dual-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

A)$28 500
B)$29 945
C)$30 245
D)$34 874

Answer 3

D

Question 4

Answer the following questions using the information below:
The Launceston Copy Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 200 000 to 300 000 copies:
Fixed costs per year $\quad \$ 40000$
Variable costs 3 cents (.03) per copy
Buageted long-nu usage in copies per year:
Marketing Department 75000 copies
Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies.

-If a single-rate cost-allocation method is used,what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs.

A)$6000
B)$8400
C)$9000
D)$6800

Question 5

What is the name of the method that allocates costs in each cost pool using the same rate per unit?

A)Dual-rate cost-allocation method
B)Reciprocal cost-allocation method
C)Incremental cost-allocation method
D)Single-rate cost allocation method

Question 6

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a single-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Large Plane Department?

A)$822 500
B)$763 750
C)$1 057 500
D)$1 031 250

Question 7

Answer the following questions using the information below:
The Launceston Copy Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 200 000 to 300 000 copies:
Fixed costs per year $\quad \$ 40000$
Variable costs 3 cents (.03) per copy
Buageted long-nu usage in copies per year:
Marketing Department 75000 copies
Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies.

-If a single-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

A)$12 776
B)$8400
C)$7200
D)$3800

Question 8

Answer the following questions using the information below:
Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2000 to 3000 hours:

Fixed operating costs per year $\$ 900000$
Variable operating costs $\$ 1200$ perhour

Budgeted long-run usage per year:

Night Light Division 2000 hours
HalfLight Division 500 hours
Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours.

-If a dual-rate cost-allocation method is used,what amount of operating costs will be budgeted for the HalfLight Division?

A)$870 000
B)$780 000
C)$750 000
D)$900 000

Question 9

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a dual-rate cost-allocation method is used,what amount of CMA costs will be budgeted for the Large Plane Department?

A)$1 237 500
B)$1 880 000
C)$1 600 000
D)$822 500

Question 10

Answer the following questions using the information below:
Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2000 to 3000 hours:

Fixed operating costs per year $\$ 900000$
Variable operating costs $\$ 1200$ perhour

Budgeted long-run usage per year:

Night Light Division 2000 hours
HalfLight Division 500 hours
Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours.

-If a single-rate cost-allocation method is used,what amount of cost will be allocated to the Night Light Division? Assume actual usage is used to allocate operating costs.

A)$3 000 000
B)$2 280 000
C)$2 400 000
D)$2 100 000

Question 11

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a dual-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate CMA costs and actual usage is used to allocate variable CMA costs.

A)$763 750
B)$912 500
C)$822 500
D)$817 500

Question 12

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a dual-rate cost-allocation method is used,what amount of CMA costs will be budgeted for the Small Plane Department?

A)$705 000
B)$1 057 500
C)$763 750
D)$962 500

Question 13

Answer the following questions using the information below:
Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2000 to 3000 hours:

Fixed operating costs per year $\$ 900000$
Variable operating costs $\$ 1200$ perhour

Budgeted long-run usage per year:

Night Light Division 2000 hours
HalfLight Division 500 hours
Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours.

-If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Night Light Division?

A)$3 000 000
B)$2 280 000
C)$3 120 000
D)$2 820 000

Question 14

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a dual-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed CMA costs and actual usage is used to allocate variable CMA costs.

A)$822 500
B)$1 087 500
C)$782 500
D)$705 000

Question 15

The dual-rate cost-allocation method classifies costs in each cost pool into a:

A)direct-cost pool and a reciprocal-cost pool.
B)used-capacity-cost pool and a practical-capacity-cost pool.
C)budgeted-cost pool and an actual-cost pool.
D)variable-cost pool and a fixed-cost pool.

Question 16

Answer the following questions using the information below:
The Launceston Copy Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 200 000 to 300 000 copies:
Fixed costs per year $\quad \$ 40000$
Variable costs 3 cents (.03) per copy
Buageted long-nu usage in copies per year:
Marketing Department 75000 copies
Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies.

-If a dual-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Operations Department?

A)$35 774
B)$28 200
C)$29 945
D)$30 245

Question 17

When the ___________ method is used,cost-allocation bases must be chosen for both the variable-cost and fixed-cost pools.

A)single-rate
B)piece-rate
C)dual-rate
D)activity-rate

Question 18

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.

-If a single-rate cost-allocation method is used,what is the allocation rate per hour used?

A)$100.00
B)$137.50
C)$80.00
D)$146.67

Question 19

The single-rate method makes no distinction between __________ costs.

A)past and present
B)direct and indirect
C)fixed and variable
D)labour and overhead

Question 20

When using the single-rate method,what should the fixed cost allocation be based?

A)Budgeted usage
B)Actual usage
C)Incremental cost allocation
D)Either A or B are correct.

Question 21

When allocations are based on ________ usage,user divisions will not know their fixed-cost allocations until the end of the budget period.

A)actual
B)budgeted
C)estimated
D)historic

Question 22

The Homebush Tennis Corporation operates one central plant that has two divisions,the Spot Light Division and the Lamp Division.The following data apply to the coming budget year:
Budgeted costs of the operating the plant for 10000 to 20000 hours:
Fixed operating costs per year $\$ 240000$
Variable operating costs $\$ 10$ per hour
Practical capacity20 000 hours per year

Budgeted long-run usage per year:
Lamp Division 800 hours $\times 12$ months $= 9600$ hours per year
Spot Light Division $\quad 450$ hours $\times 12$ months $= 5400$ hours per year
Assume that practical capacity is used to calculate the allocation rates.Further assume that actual usage of the Lamp Division was 700 hours and the Spot Light Division was 400 hours for the month of June.
Required:
a.If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Spot Light Division each month?
b.For the month of June,if a single-rate cost-allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Spot Light Division? Assume actual usage is used to allocate operating costs.
c.If a dual-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Lamp Division each month? For the Spot Light Division each month?
d.For the month of June,if a dual-rate cost-allocation method is used,what amount of cost will be allocated to the Lamp Division? To the Spot Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 23

When actual cost-allocations rates are used:

A)managers of the supplier division are motivated to improve efficiency
B)user divisions do not know allocated amounts until the end of the accounting period
C)user divisions pay for costs that exceed budgeted amounts
D)managers of the user divisions may be tempted to underestimate planned usage

Question 24

Allocating fixed costs on the basis of ___________ long-term usage may tempt some managers to underestimate their planned usage.

A)actual
B)average
C)projected
D)budgeted

Question 25

When the dual-rate method is used,cost-allocation bases must be chosen for both the variable-cost and fixed-cost pools

Question 26

The choice between actual usage and budgeted usage for allocating fixed costs can affect a manager's decisions.

Question 27

The practical capacity method of allocating costs is:

A)based on the practical capacity supplied
B)based on the using departments negotiating the charges they will accept
C)based on actual capacity used
D)based on the budgeted capacity demanded

Question 28

One benefit of the dual-rate method is the low cost to implement it.

Question 29

The only choices that a firm has for support department cost-allocation rates are to use either a budgeted rate or an actual rate.

Question 30

South Australian Fig Company has substantial fluctuations in its production costs because of the seasonal nature of fig production.
Would you recommend an actual or budgeted allocation base? Why? Would you recommend calculating monthly,seasonal,or annual allocation rates? Why?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 31

What is the biggest advantage of using practical capacity to allocate costs?

A)It is a value that is readily available
B)It focuses management's attention on unused capacity
C)It burdens the user divisions with the costs of unused capacity
D)It never causes over- or under-allocated overhead

Question 32

The Pitt Corporation has been outsourcing data processing in the belief that such outsourcing would reduce costs and increase corporate profitability.In spite of this,there has been no meaningful increase in corporate profitability.
Previously,Pitt used a single-rate method to allocate data processing costs.A per unit cost for data processing was calculated and compared to the price of the outside supplier.The price of the outside supplier was lower,so the outside bid was accepted.
Required:
Explain why Pitt's profitability has not shown improvement in terms of the cost-allocation method used.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 33

Companies commit to infrastructure costs (e.g.the fixed costs of a support department)on the basis of a ________ planning period.

A)short-term
B)projected
C)long-term
D)situational

Question 34

Answer the following questions using the information below:
Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2000 to 3000 hours:

Fixed operating costs per year $\$ 900000$
Variable operating costs $\$ 1200$ perhour

Budgeted long-run usage per year:

Night Light Division 2000 hours
HalfLight Division 500 hours
Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours.

-If a dual-rate cost-allocation method is used,what amount of cost will be allocated to the HalfLight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

A)$750 000
B)$870 000
C)$900 000
D)$780 000

Question 35

When budgeted cost-allocation rates are used,variations in actual usage by one division affect the costs allocated to other divisions.

Question 36

When __________ usage is the allocation base,user divisions know their allocated costs in advance.

A)actual
B)estimated
C)budgeted
D)targeted

Question 37

A big benefit of the single-rate method is that it signals to division managers how variable costs and fixed costs behave differently.

Question 38

The advantage of using practical capacity to allocate costs is that it focuses management's attention on managing unused capacity

Question 39

When budgeted cost-allocation rates are used,user-division managers face uncertainty about the allocation rates for that budget period.

Question 40

The single-rate cost-allocation method provides better information for decision making than the dual-rate method.

Question 41

The__________ method requires the support departments to be ranked (sequenced)in the order in which the step-down allocation is to proceed.

A)direct
B)reciprocal
C)incremental
D)step-down

Question 42

Mac Fleetwood has managed a downtown store in Sydney for several years.The firm has 10 stores in several locations around the city.In the past,senior management noticed Mac Fleetwood's work and he has received very good annual evaluations for his management of the store.
This year his store has generated steady growth in sales,but earnings have been deteriorating.After examining the monthly performance report generated by the company budgeting department,he noticed that increasing fixed costs is causing the decrease in earnings.
Administrative corporate costs,primarily fixed costs,are allocated to individual stores each month based on actual sales for that month.Two of these stores are growing rapidly,while four other stores are having operating difficulties.
Required:
From the information presented,what do you think is the cause of Mac Fleetwood's reported decrease in earnings? How can this be corrected?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 43

When actual usage is the allocation base,user divisions know their allocated costs in advance.

Question 44

Explain why organisations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 45

Complete reciprocated costs:

A)include the support department's costs plus any interdepartmental cost-allocations.
B)are used for step-down allocations.
C)are less than the support department's own costs.
D)are also referred to as budgeted costs.

Question 46

A disadvantage of the _________ method is that it ignores information about reciprocal services provided between
Support departments and can therefore lead to inaccurate estimates of the cost of operating departments.

A)indirect
B)step-down
C)reciprocal
D)direct

Question 47

Flinders Street Drive-In is a fast-food restaurant that sells burgers and hot dogs in a 1950s environment.The fixed operating costs of the company are $5000 per month.The controlling shareholder,interested in product profitability and pricing,wants all costs allocated to either the burgers or the hot dogs.The following information is provided for the operations of the company:
$\begin{array}{lll}\text { BurgersHot Dogs }\\ \text { Sales for January } & 4000 & 2400 \\\text { Sales for February } & 6400 & 2400\end{array}$
Required:
a.What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for January? For February?
b.Hot dog sales for January and February remained constant.Did the amount of fixed operating costs allocated to hot dogs also remain constant for January and February? Explain why or why not.Comment on any other observations.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 48

When do special cost-allocation problems arise?

A)Practical capacity is used as the allocation base
B)There is more than one operating department
C)Support department costs exceed budgetary estimates
D)Support departments provide reciprocal services to other support departments

Question 49

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the direct method,what amount of Maintenance Department costs will be allocated to Department A?

A)$78 000
B)$48 000
C)$64 000
D)$96 000

Question 50

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the direct method,what amount of Maintenance Department costs will be allocated to Department B?

A)$96 000
B)$64 000
C)$48 000
D)$78 000

Question 51

Which of the following is the method that allocates costs by explicitly including all the services rendered among all support departments?

A)Step-down method
B)Reciprocal method
C)Sequential method
D)Direct method

Question 52

The reciprocal allocation method:

A)is the most widely used because of its simplicity.
B)requires the ranking of support departments in the order that the allocation is to proceed.
C)results in allocating more support costs to operating departments than actually incurred.
D)is conceptually the most precise.

Question 53

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the step-down method,what amount of Maintenance Department cost will be allocated to Department A if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A)$57 334
B)$42 667
C)$32 000
D)$64 000

Question 54

A popular __________ sequence begins with the support department that renders the highest percentage of its total services to other support departments.

A)direct
B)step-down
C)reciprocal
D)incremental

Question 55

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the step-down method,what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A)$57 334
B)$51 200
C)$64 000
D)$32 000

Question 56

The step-down allocation method:

A)allocates complete reciprocated costs.
B)recognises the total amount of services that support departments provide to each other.
C)typically begins with the support department that provides the highest percentage of its total services to other support departments.
D)offers key input for outsourcing decisions.

Question 57

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the direct method,what amount of Personnel Department costs will be allocated to Department A?

A)$10 000
B)$30 000
C)$24 000
D)$16 000

Question 58

Nisota Motors is a small motor supply outlet that sells motors to companies that make various small motorised appliances.The fixed operating costs of the company are $300 000 per year.The controlling shareholder,interested in product profitability and pricing,wants all costs allocated to the motors and wants to review the company status on a quarterly basis.The shareholder is trying to determine whether the costs should be allocated each quarter based on the 25% of the annual fixed operating costs ($75 000)or by using an annual forecast budget to allocate the costs.The following information is provided for the operations of the company:
$$\begin{array}{l}\begin{array} { l r } \text { Forecast }&\text {Actual }\\\text { Sales for First Quarter }& 5000 & 4850 \\\text { Sales for Second Quarter }& 8000 & 7900 \\\text { Sales for Third Quarter } &8000 & 8125 \\\text { Sales for Fourth Quarter }& 3000 & 3125\end{array}\end{array}$$
Required:
a.What amount of fixed operating costs are assigned to each motor by quarter when actual sales are used as the allocation base and $75 000 is allocated?
b.How much fixed cost is recovered each quarter under requirement a.?
c.What amount of fixed operating costs are assigned to each motor by quarter when forecast sales
are used as the allocation base and the rate is calculated annually as part of the budgetary process?
d.How much fixed cost is recovered each quarter under requirement c.?
e.Which method seems more appropriate in this case? Explain.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 59

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:

Using the direct method,what amount of Personnel Department costs will be allocated to Department B?

A)$24 000
B)$10 000
C)$16 000
D)$30 000

Question 60

A way to implement the __________ method is to formulate and solve linear equations.

A)stand-alone
B)reciprocal
C)direct
D)step-down

Question 61

The direct allocation method highlights recognition of services rendered by support departments to other support departments.

Question 62

The direct method does not allocate support-department costs to other support departments.

Question 63

The cost-allocation method that allocates support department costs only to production departments is the:

A)sequential method.
B)reciprocal method.
C)step-down method.
D)direct method.

Question 64

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Using the direct method,what amount of Warehouse Department costs will be allocated to Department Books?

A)$90 000
B)$120 000
C)$70 000
D)$87 500

Question 65

Answer the following questions using the information below:
Mark,owner of Waugh Fiberglass Fabricators is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
$$\begin{array}{l}\text { Buigeted manuficturing overhead costs: }\\\begin{array} { l l l } \text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350000 \\\text { Data Frocessing } & \text { DP (Support Dept) } & \$ 75000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125000\end{array}\end{array}$$ Services furnished:
By Plant Maintenance (budgeted labour-hours):
$\begin{array} { l l } \text { to Data Processing } & 3500 \\ \text { to Machining } & 5000 \\ \text { to Capping } & 8200 \end{array}$

By Data Frocessing (bud geted computer time):

$\begin{array}{ll}\text { to Flant Maintenance } & 600 \\\text { to Machining } & 3500 \\\text { to Capping } & 600\end{array}$

-What is the complete reciprocated cost of the Plant Maintenance Department?

A)$365 000
B)$369 459
C)$375 773
D)$393 750

Question 66

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Using the step-down method,what amount of Data centre Department cost will be allocated to the Warehouse Department if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A)$90 000
B)$7500
C)$25 000
D)$0

Question 67

The direct allocation method provides key information for outsourcing decisions regarding support services.

Question 68

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Using the direct method,what amount of Data centre Department costs will be allocated to Department Music?

A)$30 000
B)$40 000
C)$90 000
D)$41 667

Question 69

Answer the following questions using the information below:
Dawn,owner of Fraser Fabric Pty Ltd is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
$\begin{array} { l l l } \text { Maintenance } & \mathrm { M } \text { (Support Dept) } & \$ 150000 \\ \text { Personnel } & \mathrm { P } \text { (Support Dept) } & \$ 65000 \\ \text { Weaving } & \text { W(Weaving Dept) } & \$ 325000 \\ \text { Colourising } & \text { C (Colourising Dept) } & \$ 175000 \end{array}$

Services furnished:
By Maintenance (budgeted labour-hours):
to Persontrel 500
to Weaving 3500
to Colourising 2000

By Personnel (number of employees serviced):
$\begin{array} { l l } \text { Plant Maintenance } & 5 \\ \text { Weaving } & 15 \\ \text { Colourising } & 10 \end{array}$

-What is the complete reciprocated cost of the Personnel Department?

A)$105 000
B)$78 592
C)$65 000
D)$92 500

Question 70

Which of the following departments is not an operating (or value-added)department?

A)Finishing
B)Assembly
C)Accounting
D)Machining

Question 71

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Using the step-down method,what amount of Data centre Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A)$41 667
B)$58 671
C)$54 844
D)$33 333

Question 72

Budgeted amounts for a support department will always exceed complete reciprocated costs for that department.

Question 73

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Using the step-down method,what amount of Warehouse Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

A)$66 667
B)$121 667
C)$116 667
D)$60 833

Question 74

An equivalent approach to implementing the direct method involves calculating a budgeted rate for each support department's costs.

Question 75

Answer the following questions using the information below:
Mark,owner of Waugh Fiberglass Fabricators is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
$$\begin{array}{l}\text { Buigeted manuficturing overhead costs: }\\\begin{array} { l l l } \text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350000 \\\text { Data Frocessing } & \text { DP (Support Dept) } & \$ 75000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125000\end{array}\end{array}$$ Services furnished:
By Plant Maintenance (budgeted labour-hours):
$\begin{array} { l l } \text { to Data Processing } & 3500 \\ \text { to Machining } & 5000 \\ \text { to Capping } & 8200 \end{array}$

By Data Frocessing (bud geted computer time):

$\begin{array}{ll}\text { to Flant Maintenance } & 600 \\\text { to Machining } & 3500 \\\text { to Capping } & 600\end{array}$

-What is the complete reciprocated cost of the Data Processing Department?

A)$122 971
B)$90 000
C)$118 750
D)$152 432

Question 76

The direct method allocates each support department's costs to operating departments and to support departments.

Question 77

Answer the following questions using the information below:
Dawn,owner of Fraser Fabric Pty Ltd is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
$\begin{array} { l l l } \text { Maintenance } & \mathrm { M } \text { (Support Dept) } & \$ 150000 \\ \text { Personnel } & \mathrm { P } \text { (Support Dept) } & \$ 65000 \\ \text { Weaving } & \text { W(Weaving Dept) } & \$ 325000 \\ \text { Colourising } & \text { C (Colourising Dept) } & \$ 175000 \end{array}$

Services furnished:
By Maintenance (budgeted labour-hours):
to Persontrel 500
to Weaving 3500
to Colourising 2000

By Personnel (number of employees serviced):
$\begin{array} { l l } \text { Plant Maintenance } & 5 \\ \text { Weaving } & 15 \\ \text { Colourising } & 10 \end{array}$

-Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?

A)P = $65 000
B)P = (500/6000)M
C)P = $65 000 + (500/6000)M
D)P = $150 000 - $65 000 (500/6000)M

Question 78

Which of the following is NOT one of the three methods of allocating support department costs to operating departments?

A)Direct method
B)Incremental method
C)Reciprocal method
D)Step-down method

Question 79

Answer the following questions using the information below:
Mark,owner of Waugh Fiberglass Fabricators is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
$$\begin{array}{l}\text { Buigeted manuficturing overhead costs: }\\\begin{array} { l l l } \text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350000 \\\text { Data Frocessing } & \text { DP (Support Dept) } & \$ 75000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125000\end{array}\end{array}$$ Services furnished:
By Plant Maintenance (budgeted labour-hours):
$\begin{array} { l l } \text { to Data Processing } & 3500 \\ \text { to Machining } & 5000 \\ \text { to Capping } & 8200 \end{array}$

By Data Frocessing (bud geted computer time):

$\begin{array}{ll}\text { to Flant Maintenance } & 600 \\\text { to Machining } & 3500 \\\text { to Capping } & 600\end{array}$

-Which of the following linear equations represents the complete reciprocated cost of the Data Processing Department?

A)DP = $350 000 + (600/16 700)DP
B)DP = $75 000 + (600/4700)PM
C)DP = $75 000 + (3500/16 700)PM
D)DP = $75 000 × (600/4700)+ $350 000 × (3340/16 700)

Question 80

Answer the following questions using the information below:
Dawn,owner of Fraser Fabric Pty Ltd is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
$\begin{array} { l l l } \text { Maintenance } & \mathrm { M } \text { (Support Dept) } & \$ 150000 \\ \text { Personnel } & \mathrm { P } \text { (Support Dept) } & \$ 65000 \\ \text { Weaving } & \text { W(Weaving Dept) } & \$ 325000 \\ \text { Colourising } & \text { C (Colourising Dept) } & \$ 175000 \end{array}$

Services furnished:
By Maintenance (budgeted labour-hours):
to Persontrel 500
to Weaving 3500
to Colourising 2000

By Personnel (number of employees serviced):
$\begin{array} { l l } \text { Plant Maintenance } & 5 \\ \text { Weaving } & 15 \\ \text { Colourising } & 10 \end{array}$

-What is the complete reciprocated cost of the Maintenance Department?

A)$163 098
B)$150 000
C)$160 833
D)$0