Question 1

When a support department's activities are not fully consumed by other departments (that is, the support department self-consumes some costs):

Accepted Answer

A

Question 2

The cost driver used to allocate costs of support activities should bear an economic relation to the revenue generated.

Accepted Answer

The cost driver used to allocate costs of support activities should bear a causal or physical relationship to the activity being costed, not necessarily to the revenue generated.

Question 3

A line activity:

Accepted Answer

A line activity directly relates to producing services or products, and its costs are not allocated to support activities. Choices A, C, D, and E are incorrect statements.

Question 4

In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools.

Accepted Answer

In decentralized firms, different managers are usually responsible for overseeing the activities and costs associated with the different cost pools. This helps to improve decision-making and accountability at the local level, while still allowing for overall coordination and strategic direction from senior management.

Question 5

The purchasing department is an example of a support activity for a manufacturing company.

Accepted Answer

The purchasing department supports the manufacturing process by procuring raw materials, equipment, and supplies needed for production.

Question 6

Cost allocation rates serve as the explicit "price" for the services line managers obtain from other line activities.

Accepted Answer

Cost allocation rates are used to distribute indirect costs to different departments or products, not as a price for services between line managers.

Question 7

Under the direct method of allocating support activity costs, any consumption by other support departments are allocated to both support and line activities.

Accepted Answer

Under the direct method of allocating support activity costs, costs are allocated directly to the operating (or line) departments without recognizing any service provided between support departments.

Question 8

A support activity:

Accepted Answer

Support activities are necessary for running the business but are not directly involved in the production or sale of products or services.

Question 9

The step-down method of allocating support activity costs is also referred to as the rank-ordering method.

Accepted Answer

The answer of The step-down method of allocating support activity...

Question 10

It may be more appropriate for firms to employ long-term expected demand to allocate fixed capacity costs, and actual demand to allocate short-term variable costs.

Accepted Answer

Long-term expected demand is a better basis to allocate fixed capacity costs because these costs are relatively fixed in the short-term and only change significantly over longer periods of time. Actual demand is a better basis to allocate short-term variable costs because these costs fluctuate with changes in demand in the short-term.

Question 11

The direct and step-down methods of allocating support activity costs differ from the reciprocal method in that the reciprocal method uses a dual-rate allocation.

Accepted Answer

The direct and step-down methods do not account for the mutual services exchanged between support departments, whereas the reciprocal method does by solving simultaneous equations to allocate costs more accurately.

Question 12

The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion.

Accepted Answer

The step-down method involves ranking support activity cost pools based on a criterion such as the amount of interaction with other departments.

Question 13

Which of the following is not a method used to allocate support activity costs?

Accepted Answer

The self-consumption method is not a commonly used method to allocate support activity costs. The direct method, reciprocal method, and step-down method are all common methods used for this purpose.

Question 14

A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion.

Accepted Answer

In a step-down allocation method, the ranking of cost pools is not based on an absolute criterion but rather on the discretion of management, often considering the degree of interdepartmental service provided.

Question 15

Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex.

Accepted Answer

Electrical engineering is a line activity that can be traced back to the contracts undertaken by a Design Specialist Consulting Firm for a multi-story office complex.

Question 16

One answer to the problem of using a single cost driver to allocate support activity costs is to use a dual-rate allocation.

Accepted Answer

A dual-rate allocation method separates the support activity costs into fixed costs and variable costs, and allocates them based on different cost drivers. This helps to better reflect the cause-and-effect relationship between the support activities and the products/services they support.

Question 17

A line activity relates indirectly to producing services or products.

Accepted Answer

A line activity directly relates to producing services or products, as it involves tasks that are integral to the core operations of a business.

Question 18

All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs.

Accepted Answer

The answer of All three methods of allocating support activity...

Question 19

In a consulting company specializing in designing multi-story office complexes, which of the following activities would not be classified as support activity?

Accepted Answer

Structural engineering directly relates to the core activity of designing multi-story office complexes, whereas shipping, purchasing, and human resources are all examples of support activities.

Question 20

The reciprocal method of allocating support activity costs is conceptually the most appealing method because it takes into account all of the reciprocity in consumption.

Accepted Answer

The reciprocal method of allocating support activity costs considers all the interactions among support departments and recognizes the mutual services provided by each other. As a result, it is considered to be the most appropriate and accurate method for allocating support activity costs.

Quiz 16: Refining Systems: Support Activity

When a support department's activities are not fully consumed by other departments (that is, the support department self-consumes some costs) :