Deck 15: Allocation of Support-Department Costs, common Costs, and Revenues

Question 1

The advantage of using practical capacity to allocate costs ________.

A) is that it allows a downward supply spiral to develop
B) is that it focuses management's attention on managing unused capacity
C) is that budgets are much easier to develop
D) is that it results in departments bearing a lower percentage of fixed costs

Answer 1

B

Question 2

Which of the following is an advantage of a dual-rate method?

A) It is the most widely used method in practice.
B) It is less costly to implement.
C) It avoids the expensive analysis for categorizing costs as either fixed or variable.
D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.

Answer 2

D

Question 3

Answer the following questions using the information below:
The Charmatz 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
$\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\\\text { Fixed costs per year }&\$60,000\\\text { Variable costs }&3 \text { cents }(.03) \text { per copy }\\\text { Budgeted long-run usage in copies per year: }\\\text { Marketing Department } & 120,000 & \text { copies } \\\text { Operations Department } & 380,000 & \text { copies }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 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) $60,490
B) $59,890
C) $57,000
D) $56,400

Answer 3

$56,400

Question 4

Which of the following is a disadvantage of single-rate method?

A) It is very costly to implement.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It does not signal to department managers how variable costs and fixed costs behave differently.
D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging task.

Question 5

Answer the following questions using the information below:
The Charmatz 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
$\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\\\text { Fixed costs per year }&\$60,000\\\text { Variable costs }&3 \text { cents }(.03) \text { per copy }\\\text { Budgeted long-run usage in copies per year: }\\\text { Marketing Department } & 120,000 & \text { copies } \\\text { Operations Department } & 380,000 & \text { copies }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.

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

A) $57,000
B) $56,400
C) $60,490
D) $59,890

Question 6

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $8,166,666.67
B) $8,766,666.67
C) $8,433,333.33
D) $8,633,333.33

Question 7

When using the dual-rate method,the fixed cost allocation is based on ________.

A) indirect usage
B) budgeted usage
C) incremental cost allocation
D) prime cost allocation

Question 8

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $9,866,667
B) $8,226,667
C) $9,781,333
D) $9,881,333

Question 9

The method that allocates costs in each cost pool using the same rate per unit is known as the ________.

A) incremental cost-allocation method
B) reciprocal cost-allocation method
C) single-rate cost allocation method
D) dual-rate cost-allocation method

Question 10

The biggest advantage of using practical capacity to allocate costs is that it ________.

A) focuses the user's division with the costs of overused capacity
B) never causes over or under-allocated overhead
C) burdens the user divisions with the costs of unused capacity
D) focuses management's attention on unused capacity

Question 11

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $8,225,000
B) $8,050,000
C) $8,483,333
D) $8,783,333

Question 12

Answer the following questions using the information below:
The Charmatz 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
$\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\\\text { Fixed costs per year }&\$60,000\\\text { Variable costs }&3 \text { cents }(.03) \text { per copy }\\\text { Budgeted long-run usage in copies per year: }\\\text { Marketing Department } & 120,000 & \text { copies } \\\text { Operations Department } & 380,000 & \text { copies }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 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) $16,800
B) $18,000
C) $12,000
D) $9,600

Question 13

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

A) budgeted-cost pool and an actual-cost pool
B) variable-cost pool and a fixed-cost pool
C) direct-cost pool and an indirect-cost pool
D) direct-cost pool and a reciprocal-cost pool

Question 14

Which of the following is an advantage of the single-rate method?

A) It is less costly to implement.
B) It classifies costs as fixed and variable costs.
C) It gives signals regarding how variable and fixed costs behave differently.
D) It helps the managers on short-run and long-run planning due to fixed cost allocation as per budgeted usage.

Question 15

Answer the following questions using the information below:
The Charmatz 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
$\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\\\text { Fixed costs per year }&\$60,000\\\text { Variable costs }&3 \text { cents }(.03) \text { per copy }\\\text { Budgeted long-run usage in copies per year: }\\\text { Marketing Department } & 120,000 & \text { copies } \\\text { Operations Department } & 380,000 & \text { copies }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.

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

A) $18,000
B) $3,600
C) $14,400
D) $16,800

Question 16

The single-rate cost-allocation method may base the denominator choice on ________.

A) master-budget capacity utilization
B) fixed cost utilization
C) variable cost utilization
D) direct-cost utilization

Question 17

Which of the following is a disadvantage of a dual-rate method?

A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.

Question 18

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $97.33
B) $123.33
C) $146.67
D) $113.33

Question 19

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $9,133,333
B) $9,166,667
C) $9,466,667
D) $9,666,667

Question 20

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
$\begin{array}{lll}\text { Fixed costs per year }&\$8,000,000\\\text { Variable costs }&\$ 70 \text { per technician hour }\\\text { Budgeted long-run usage in hours per year: }\\\text { Large Plane Department } & 80,000 \text { technician hours } \\\text { Small Plane Department } & 70,000 \text { technician hours }\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

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

A) $10,575,000
B) $9,633,333
C) $8,433,333
D) $8,633,333

Question 21

The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually.Variable costs are incurred at the rate of $30 per maintenance-hour.The facility averages 40,000 maintenance-hours a year.Budgeted and actual hours per user for 20X3 are as follows:
Assume that budgeted maintenance-hours are used to calculate the allocation rates.
Required:
a.If a single-rate cost-allocation method is used,what amount of maintenance cost will be budgeted for each department?
b.If a single-rate cost-allocation method is used,what amount of maintenance cost will be allocated to each department based on actual usage?
c.If a dual-rate cost-allocation method is used,what amount of maintenance cost will be budgeted for each department?
d.If a dual-rate cost-allocation method is used,what amount of maintenance cost will be allocated to each department based on actual usage? Based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

Question 22

The dual-rate cost-allocation method provides better information for decision making than the single-rate method as it differentiates between fixed and variable costs and its allocation.

Question 23

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

Question 24

When actual cost-allocations rates are used ________.

A) user divisions pay for costs that exceed budgeted amounts
B) managers of the supplier division are motivated to improve efficiency
C) user divisions are unaware of the allocated amounts until the end of the budget period
D) managers know with certainty the rates to be used in that budget period

Question 25

The single cost-allocation method makes no distinction between fixed and variable costs.

Question 26

The Alex Miller Corporation operates one central plant that has two divisions,the Flashlight Division and the Night Light Division.The following data apply to the coming budget year:
Budgeted costs of the operating the plant
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 Flashlight 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 Flashlight 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 Flashlight 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 Flashlight 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 Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Question 27

Answer the following questions using the information below:
Illumination Corp operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2,000 to 3,000 hours:
$\begin{array}{lr}\text { Fixed operating costs per year } & \$ 500,000 \\\text { Variable operating costs } & \$ 800 \text { per hour } \\\text { Budgeted long-run usage per year: } & 2,000 \text { hours } \\\text { Flashlight Division } & 1000 \text { hours } \\\text { Night Light Division } & 4,000 \text { hours }\end{array}$ Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1,500 hours and by the Night Light Division was 800 hours.

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

A) $890,000
B) $900,000
C) $925,000
D) $835,000

Question 28

Van Meter Fig Company has substantial fluctuations in its production costs because of the seasonality of figs.
Would you recommend an actual or budgeted allocation base? Why? Would you recommend calculating monthly,seasonal,or annual allocation rates? Why?

Question 29

Answer the following questions using the information below:
Illumination Corp operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2,000 to 3,000 hours:
$\begin{array}{lr}\text { Fixed operating costs per year } & \$ 500,000 \\\text { Variable operating costs } & \$ 800 \text { per hour } \\\text { Budgeted long-run usage per year: } & 2,000 \text { hours } \\\text { Flashlight Division } & 1000 \text { hours } \\\text { Night Light Division } & 4,000 \text { hours }\end{array}$ Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1,500 hours and by the Night Light Division was 800 hours.

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

A) $1,850,000
B) $1,560,000
C) $1,740,000
D) $1,950,000

Question 30

The dual cost-allocation method classifies costs into two pools,a budgeted cost pool and an actual cost pool.

Question 31

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 computed and compared to the price of the outside supplier.The price of the outside supplier was lower and thus,the outside bid was accepted.
Required:
Formulate a possible reason why Pitt's profitability has not shown improvement in terms of the cost allocation method used.

Question 32

Under the dual-rate cost-allocation method,when fixed costs are allocated based on actual usage then ________.

A) user-division managers are motivated to make accurate long-run usage forecasts
B) user-division managers can better plan for the short-run and for the long-run
C) the costs of unused capacity are highlighted
D) variations in one division's usage affect another division's allocation

Question 33

What is an operating department and how is it different from a support department? Give examples of each.

Question 34

An advantage of the single-rate method is that it is the most accurate method of cost-allocation.

Question 35

When budgeted cost-allocations rates are used ________.

A) user departments are not informed about the charges until the end of the period
B) the manager of the supplier division bears the risk of unfavorable cost variances
C) user divisions pay for costs that exceed budgeted amounts
D) user divisions pay for inefficiencies of the supplier department

Question 36

To discourage unnecessary use of a support department,management might ________.

A) allocate user department costs based upon support department usage
B) allocate support department costs based upon user department usage
C) allocate a fixed amount of support department costs to each and every department
D) allocate a fixed amount of user department costs to each and every department

Question 37

The costs of unused capacity are highlighted when ________.

A) actual usage based allocations are used
B) budgeted usage allocations are used
C) practical capacity-based allocations are used
D) the dual-rate cost-allocation method allocates fixed costs based on actual usage

Question 38

Answer the following questions using the information below:
Illumination Corp operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2,000 to 3,000 hours:
$\begin{array}{lr}\text { Fixed operating costs per year } & \$ 500,000 \\\text { Variable operating costs } & \$ 800 \text { per hour } \\\text { Budgeted long-run usage per year: } & 2,000 \text { hours } \\\text { Flashlight Division } & 1000 \text { hours } \\\text { Night Light Division } & 4,000 \text { hours }\end{array}$ Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1,500 hours and by the Night Light Division was 800 hours.

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

A) $1,247,500
B) $1,300,000
C) $1,487,500
D) $1,387,500

Question 39

The single-rate method transforms the direct costs per hour into indirect costs to users of that facility.

Question 40

Answer the following questions using the information below:
Illumination Corp operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2,000 to 3,000 hours:
$\begin{array}{lr}\text { Fixed operating costs per year } & \$ 500,000 \\\text { Variable operating costs } & \$ 800 \text { per hour } \\\text { Budgeted long-run usage per year: } & 2,000 \text { hours } \\\text { Flashlight Division } & 1000 \text { hours } \\\text { Night Light Division } & 4,000 \text { hours }\end{array}$ Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1,500 hours and by the Night Light Division was 800 hours.

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

A) $810,000
B) $765,000
C) $790,000
D) $750,000

Question 41

Under which allocation method are one-way reciprocal support services recognized?

A) direct method
B) artificial cost method
C) reciprocal method
D) step-down method

Question 42

When actual cost-allocation rates are used,managers of the supplier division are motivated to improve efficiency.

Question 43

The direct allocation method ________.

A) allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments
B) allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments
C) allocates each support-department's costs to operating departments only
D) requires managers to rank the support departments in the order that the step-down allocation is to proceed

Question 44

Complete reciprocated costs ________.

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

Question 45

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

Question 46

The step-down method ________.

A) partially recognizes the services provided among support departments
B) does not recognize the total services that support departments provide to each other
C) is conceptually the most precise method
D) results in allocating only the support costs used by operating departments

Question 47

Special cost-allocation problems arise when ________.

A) support department costs exceed budgetary estimates
B) practical capacity is used as the allocation base
C) support departments provide reciprocal services to each other and operating departments
D) the same cost-allocation base is used among various support departments

Question 48

Marvelous Motors is a small motor supply outlet that sells motors to companies that make various small motorized 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:
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 49

The method that allocates costs by explicitly including all the services rendered among all support departments is the ________.

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

Question 50

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

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

A) $82,000
B) $80,000
C) $77,000
D) $75,000

Question 51

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

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

A) $96,000
B) $100,000
C) $110,000
D) $122,000

Question 52

The direct allocation method ________.

A) does not allocate support department costs to other support departments
B) uses information about reciprocal services provided among support departments and can therefore lead to inaccurate estimates of the cost of operating departments
C) allocates complete reciprocated costs
D) offers key input for outsourcing decisions

Question 53

Which of the following departments is a support department for a boat manufacturing company?

A) production
B) molding
C) assembling
D) accounting

Question 54

Managers of supplier departments ________.

A) view the budgeted rates positively if unfavorable cost variances occur due to price decreases outside of their control
B) view the budgeted rates negatively if favorable cost variances occur due to price decreases outside of their control
C) view the budgeted rates negatively if unfavorable cost variances occur due to price increases outside of their control
D) view the budgeted rates negatively if unfavorable cost variances occur due to price decreases outside of their control

Question 55

Because the variable costs are directly and causally linked to usage,charging them as a function of the actual usage is appropriate.

Question 56

When budgeted fixed costs are allocated based on actual usage,user departments will not know their fixed-cost allocations until the end of the budget period.

Question 57

Foodiez Inn is a fast-food restaurant that sells burgers and hot dogs in a 1980s environment.The fixed operating costs of the company are $10,000 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:
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 58

Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Explain.

Question 59

Jonathan has managed a downtown store in a major metropolitan city for several years.The firm has ten stores in varying locations.In the past,senior management noticed Jonathan'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 currently growing at a rapid pace,while four other stores are having operating difficulties.
Required:
From the information presented,what do you think is the cause of Jonathan's reported decrease in earnings? How can this be corrected?

Question 60

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) highlights the complete reciprocated costs of support departments and how these costs differ from budgeted or actual costs of the departments
D) allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments

Question 61

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

-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) $100,000
B) $132,372
C) $134,472
D) $138,462

Question 62

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
$$\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } &&{ \begin{array} { c } \text { Production } \\\text { Departments }\end{array} } \\\hline & \begin{array} { c } \text { Warehouse } \\\text { Department }\end{array} & \begin{array} { c } \text { Data Center } \\\text { Department }\end{array} & \text { Music } & \text { Books } \\\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \\\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \\\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \\\hline\end{array}$$

-Using the step-down method,what amount of Data Center 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) $117,342
B) $66,667
C) $92,592
D) $83,333

Question 63

Which of the following is an operating department?

A) machining
B) accounting
C) materials management
D) production control

Question 64

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
$$\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } &&{ \begin{array} { c } \text { Production } \\\text { Departments }\end{array} } \\\hline & \begin{array} { c } \text { Warehouse } \\\text { Department }\end{array} & \begin{array} { c } \text { Data Center } \\\text { Department }\end{array} & \text { Music } & \text { Books } \\\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \\\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \\\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \\\hline\end{array}$$

-Using the step-down method,what amount of Data Center 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) $50,000
B) $150,000
C) $15,000
D) $0

Question 65

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
$$\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } &&{ \begin{array} { c } \text { Production } \\\text { Departments }\end{array} } \\\hline & \begin{array} { c } \text { Warehouse } \\\text { Department }\end{array} & \begin{array} { c } \text { Data Center } \\\text { Department }\end{array} & \text { Music } & \text { Books } \\\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \\\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \\\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \\\hline\end{array}$$

-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) $233,333
B) $116,667
C) $243,333
D) $121,667

Question 66

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

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

A) $25,000
B) $28,000
C) $30,000
D) $20,000

Question 67

Answer the following questions using the information below:
Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs: }$
$\begin{array}{llr}\text { Maintenance } & \text { M (Support Dept) } & \$ 300,000 \\\text { Personnel } & \mathrm{P} \text { (Support Dept) } & \$ 160,000 \\\text { Weaving } & \text { W (Weaving Dept) } & \$ 650,000 \\\text { Colorizing } & \mathrm{C} \text { (Colorizing Dept) } & \$ 350,000\end{array}$

$\begin{array}{ll}\text { Services fumished: }\\\text { By Maintenance (bud geted labor-hours): }\\\text { to Personnel } & 1,000 \\\text { to Weaving } & 7,000 \\\text { to Colorizing } & 4,000\\\text { By Personnel (Number of employees serviced): }\\\text { Plant Maintenance } & 10 \\\text { Weaving } & 30 \\\text { Colorizing } & 20\end{array}$

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

A) $185,000
B) $187,606
C) $160,000
D) $210,000

Question 68

Which of the following is one of the methods of allocating support department costs to operating departments?

A) dual-cost allocation method
B) incremental method
C) step-down method
D) single-rate cost allocation method

Question 69

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

Question 70

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
$$\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } &&{ \begin{array} { c } \text { Production } \\\text { Departments }\end{array} } \\\hline & \begin{array} { c } \text { Warehouse } \\\text { Department }\end{array} & \begin{array} { c } \text { Data Center } \\\text { Department }\end{array} & \text { Music } & \text { Books } \\\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \\\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \\\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \\\hline\end{array}$$

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

A) $150,000
B) $66,667
C) $83,333
D) $60,000

Question 71

Answer the following questions using the information below:
Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs }$
$\begin{array}{lll}\text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350,000 \\\text { Data Processing } & \text { DP (Support Dept) } & \$ 75,000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225,000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125,000\end{array}$

$\text { Services furmished: }$
$\begin{array}{ll}\text { By Plant Maintenance (bud geted labor-hours): }\\\text { to Data Processing } & 3,500 \\\text { to Machining } & 5,000 \\\text { to Capping } & 8,200\\\text { By Data Processing (bud geted computer time): }\\\text { to Plant Maintenance } & 600 \\\text { to Machining } & 3,500 \\\text { to Capping } & 600\end{array}$

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

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

Question 72

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

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

A) $210,000
B) $225,000
C) $198,000
D) $200,000

Question 73

Answer the following questions using the information below:
Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs: }$
$\begin{array}{llr}\text { Maintenance } & \text { M (Support Dept) } & \$ 300,000 \\\text { Personnel } & \mathrm{P} \text { (Support Dept) } & \$ 160,000 \\\text { Weaving } & \text { W (Weaving Dept) } & \$ 650,000 \\\text { Colorizing } & \mathrm{C} \text { (Colorizing Dept) } & \$ 350,000\end{array}$

$\begin{array}{ll}\text { Services fumished: }\\\text { By Maintenance (bud geted labor-hours): }\\\text { to Personnel } & 1,000 \\\text { to Weaving } & 7,000 \\\text { to Colorizing } & 4,000\\\text { By Personnel (Number of employees serviced): }\\\text { Plant Maintenance } & 10 \\\text { Weaving } & 30 \\\text { Colorizing } & 20\end{array}$

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

A) $331,267
B) $326,667
C) $300,000
D) $0

Question 74

The reciprocal method allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments.

Question 75

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
$$\begin{array} { | l | c | c | c | c | } \hline & { \text { Support Departments } } &&{ \begin{array} { c } \text { Production } \\\text { Departments }\end{array} } \\\hline & \begin{array} { c } \text { Warehouse } \\\text { Department }\end{array} & \begin{array} { c } \text { Data Center } \\\text { Department }\end{array} & \text { Music } & \text { Books } \\\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \\\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \\\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \\\hline\end{array}$$

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

A) $140,000
B) $210,000
C) $150,000
D) $175,000

Question 76

Answer the following questions using the information below:
Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs }$
$\begin{array}{lll}\text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350,000 \\\text { Data Processing } & \text { DP (Support Dept) } & \$ 75,000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225,000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125,000\end{array}$

$\text { Services furmished: }$
$\begin{array}{ll}\text { By Plant Maintenance (bud geted labor-hours): }\\\text { to Data Processing } & 3,500 \\\text { to Machining } & 5,000 \\\text { to Capping } & 8,200\\\text { By Data Processing (bud geted computer time): }\\\text { to Plant Maintenance } & 600 \\\text { to Machining } & 3,500 \\\text { to Capping } & 600\end{array}$

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

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

Question 77

Answer the following questions using the information below:
Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs }$
$\begin{array}{lll}\text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350,000 \\\text { Data Processing } & \text { DP (Support Dept) } & \$ 75,000 \\\text { Machining } & \text { M (Operating Dept) } & \$ 225,000 \\\text { Capping } & \text { C (Operating Dept) } & \$ 125,000\end{array}$

$\text { Services furmished: }$
$\begin{array}{ll}\text { By Plant Maintenance (bud geted labor-hours): }\\\text { to Data Processing } & 3,500 \\\text { to Machining } & 5,000 \\\text { to Capping } & 8,200\\\text { By Data Processing (bud geted computer time): }\\\text { to Plant Maintenance } & 600 \\\text { to Machining } & 3,500 \\\text { to Capping } & 600\end{array}$

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

A) DP= $75,000 + (600/4,700) PM
B) DP= $75,000 + (3,500/16,700) PM
C) DP= $75,000 × (600/4,700) + $350,000 × (3,340/16,700)
D) DP= $350,000 + (600/16,700) DP

Question 78

Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
$\begin{array}{|l|c|c|c|c|}\hline&\text { Support Departments }&&\text { Production }\\&&&\text { Departments }\\\hline& \begin{array}{c}\text { Maintenance } \\\text { Department }\end{array} & \begin{array}{c}\text { Personnel } \\\text { Department }\end{array} & \text { A } & \text { B } \\\hline\text { Budgeted costs } & \$ 300,000 & \$ 100,000 & \$ 160,000 & \$ 240,000 \\\hline \text { hudgeted maintenance- } & \text { NA } & 800 & 1,200 & 600 \\\text { hours }\\\hline \text { Number of employees } & 50 & \text { NA } & 200 & 600\\\hline\end{array}$

-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) $84,143
B) $69,231
C) $66,734
D) $71,443

Question 79

The cost-allocation method that allocates each support-department's costs to operating departments only is the ________.

A) direct method
B) single-rate cost allocation method
C) step-down method
D) reciprocal method

Question 80

Answer the following questions using the information below:
Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
$\text { Budgeted manufacturing overhead costs: }$
$\begin{array}{llr}\text { Maintenance } & \text { M (Support Dept) } & \$ 300,000 \\\text { Personnel } & \mathrm{P} \text { (Support Dept) } & \$ 160,000 \\\text { Weaving } & \text { W (Weaving Dept) } & \$ 650,000 \\\text { Colorizing } & \mathrm{C} \text { (Colorizing Dept) } & \$ 350,000\end{array}$

$\begin{array}{ll}\text { Services fumished: }\\\text { By Maintenance (bud geted labor-hours): }\\\text { to Personnel } & 1,000 \\\text { to Weaving } & 7,000 \\\text { to Colorizing } & 4,000\\\text { By Personnel (Number of employees serviced): }\\\text { Plant Maintenance } & 10 \\\text { Weaving } & 30 \\\text { Colorizing } & 20\end{array}$

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

A) P = $300,000 - $160,000 (1,000/12,000) M
B) P = (1,000/12,000) M
C) P = $160,000 + (1,000/12,000) M
D) P = $160,000