Question 1

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:
 $\begin{array}{lrr}&\text { Budgeted hours }&\text { Actual hours }\
\text { Building and grounds } & 10,000 & 12,000 \
\text { Operating and emergency } & 8,000 & 8,000 \
\text { Patient care } & 21,000 & 22,000 \
\text { Administration } & 1,000 & 1,200 \
\text { Total } & 40,000 & 43,200
\end{array}$ 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?

Accepted Answer

The answer of The fixed costs of operating the maintenance...

Question 2

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.

Accepted Answer

The dual-rate cost-allocation method separates fixed and variable costs and allocates them based on their specific cost drivers, providing more accurate information for decision making compared to the single-rate method which allocates all costs based on one overall cost driver.

Question 3

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

Accepted Answer

This statement is true. Actual cost-allocation rates may differ from the projected rates used for budgeting, which can cause uncertainty for user-division managers who rely on the allocation rates for financial planning and decision-making.

Question 4

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

Accepted Answer

The answer of When actual cost-allocations rates are used ________.
A)...

Question 5

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

Accepted Answer

The single cost-allocation method treats all costs as if they are variable and allocates them to the products or services based on a single cost driver. It does not distinguish between fixed and variable costs.

Question 6

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
 $\begin{array}{lr}\text { for } 10,000 \text { to } 20,000 \text { hours: }\
\text { Fixed operating costs per year } & \$ 240,000 \
\text { Variable operating costs } & \$ 10 \text { per hour } \
\text { Practical capacity } & 20,000 \text { hours per year } \
\text { Budgeted long-run usage per year: } \
\text { Lamp Division } \quad 800 \text { hours } \times 12 \text { months }= & 9,600 \text { hours per year } \
\text { Flashlight Division } \quad 450 \text { hours } \times 12 \text { months }= & 5,400 \text { hours per year }
\end{array}$ 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.

Accepted Answer

The answer of The Alex Miller Corporation operates one central...

Question 7

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

Accepted Answer

The answer of Answer the following questions using the information...

Question 8

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?

Accepted Answer

The answer of Van Meter Fig Company has substantial fluctuations...

Question 9

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

Accepted Answer

The budgeted operating costs for the Flashlight Division are $1,850,000. This is calculated by multiplying the budgeted long-run usage per year by the variable operating costs per hour and adding the fixed operating costs per year.

Question 10

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

Accepted Answer

The dual cost-allocation method classifies costs into two pools, a variable cost pool and a fixed cost pool.

Question 11

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.

Accepted Answer

The answer of The Pitt Corporation has been outsourcing data...

Question 12

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

Accepted Answer

The answer of Under the dual-rate cost-allocation method,when fixed costs...

Question 13

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

Accepted Answer

The answer of What is an operating department and how...

Question 14

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

Accepted Answer

The single-rate method is not necessarily the most accurate method of cost-allocation as it may not consider different cost drivers that may affect the allocation of costs to different activities or products. Other methods such as activity-based costing (ABC) which considers multiple cost drivers may provide more accurate cost-allocation.

Question 15

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

Accepted Answer

When budgeted cost-allocations rates are used, the manager of the supplier division (the department responsible for providing goods or services to other departments) bears the risk of unfavorable cost variances, meaning they are responsible for any additional costs that may exceed the budgeted amount. The user departments are charged based on the predetermined cost allocation rate, but they do not pay for inefficiencies or charges that exceed the budgeted amount.

Question 16

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

Accepted Answer

Allocating support department costs based upon user department usage will discourage unnecessary use of the support department. It will incentivize user departments to only utilize the support department when necessary, as they will be charged based on their usage. Allocating user department costs or a fixed amount of support department costs to each department are not effective methods for discouraging unnecessary use of the support department.

Question 17

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

Accepted Answer

Unused capacity costs are highlighted when practical capacity-based allocations are used. This method allocates costs based on the maximum output that a company can productively sustain in a given time period, regardless of the actual level of output achieved. This means that if a company only uses a portion of its practical capacity, the fixed costs are still allocated across the entire practical capacity, resulting in higher costs per unit of output. Budgeted usage allocations and actual usage-based allocations do not necessarily take unused capacity into account, and the dual-rate cost-allocation method only allocates fixed costs based on actual usage, which may not fully capture unused capacity costs.

Question 18

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

Accepted Answer

The answer of Answer the following questions using the information...

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The answer of Answer the following questions using the information...

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

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.

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

When actual cost-allocations rates are used ________.

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

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?

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

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

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

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

When budgeted cost-allocations rates are used ________.

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

The costs of unused capacity are highlighted when ________.

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