Question 1

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 2

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 3

The costs of unused capacity are highlighted when ________.

Accepted Answer

The costs of unused capacity are highlighted when practical capacity-based allocations are used, as this method allocates fixed costs based on the practical or achievable capacity of a particular resource rather than its actual usage. This can result in higher cost allocations to products or services that use less of the resource than its practical capacity, thereby highlighting the cost of unused capacity. Option A is incorrect because actual usage-based allocations may not necessarily capture the costs of unused capacity. Option B is incorrect because budgeted usage allocations are based on planned usage, not actual or practical usage. Option D is incorrect because the dual-rate cost-allocation method factors in both variable and fixed costs, but it does not explicitly highlight the costs of unused capacity.

Question 4

Illumination 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 operating the plant for 2000 to 3000 hours:

Budgeted long-run usage per year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1500 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?

Accepted Answer

Night Light Division cost = [(1000 / 4000)× $500,000] + (1000 × $850)= $975,000

Question 5

Illumination 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 operating the plant for 2000 to 3000 hours:

Budgeted long-run usage per year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1500 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.

Accepted Answer

Flashlight Division cost = [(2000 / 4000)× $500,000] + (2000 × $900)= $2,050,000
($2,050,000 / 2000)× 1500 = $1,537,500

Question 6

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 7

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

Accepted Answer

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

Question 8

Allocating variable costs on the basis of budgeted usage would provide the user departments with no incentive to control their consumption of support services.

Accepted Answer

If variable costs are allocated on the basis of budgeted usage, departments are not rewarded or penalized for their actual usage. They have no incentive to reduce their consumption of support services, which leads to increased costs for the organization.

Question 9

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 recognizes that not all costs are variable and differentiates between fixed and variable costs, resulting in a more accurate allocation of costs to the products or services being analyzed. This more detailed information can lead to better decision making compared to the single-rate method, which treats all costs as variable and allocates them uniformly.

Question 10

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 2017 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?

Accepted Answer

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

Question 11

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
for 10,000 to 20,000 hours:
  
Budgeted long-run usage 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 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 12

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 the easiest cost allocation method,but it is the least accurate cost-allocation choice.

Question 13

Illumination 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 operating the plant for 2000 to 3000 hours:

Budgeted long-run usage per year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1400 hours and by the Night Light Division was 700 hours.If a single-rate cost-allocation method is used,what amount of operating costs will be budgeted for the Flashlight Division?

Accepted Answer

Flashlight Division cost = [(1500 / 3000)× $480,000] + (1500 × $800)= $1,440,000

Question 14

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 15

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

Accepted Answer

By allocating support department costs based upon user department usage, it creates an incentive for departments to minimize unnecessary usage of the support department. This way, departments will only utilize support when necessary and not abuse it, reducing overall costs for the organization. Allocating costs based on usage also ensures that departments only pay for the support they use, making the allocation fair and accurate.

Question 16

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 17

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

Accepted Answer

The single cost-allocation method allocates all costs, whether fixed or variable, to a single allocation base. It does not distinguish between fixed and variable costs.

Question 18

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 2000 to 3000 hours:

Budgeted long-run usage per year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1400 hours and by the Night Light Division was 700 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.

Accepted Answer

Night Light Division cost = [(600 / 3000)× $480,000] + (700 × $700)= $586,000

Question 19

When actual cost-allocations rates are used,which of the following would be true?

Accepted Answer

The answer of When actual cost-allocations rates are used,which of...

Question 20

When budgeted cost-allocations rates are used ________.

Accepted Answer

Budgeted cost-allocations rates provide user departments with information on the expected costs of services or resources they request. User departments can then decide how much service or resource they need and whether to use internal or external resources based on the budgeted rates.

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

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

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 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.

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

Allocating variable costs on the basis of budgeted usage would provide the user departments with no incentive to control their consumption of support services.

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.

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

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

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

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

When actual cost-allocations rates are used,which of the following would be true?

When budgeted cost-allocations rates are used ________.