WST Corporation uses actual amounts to calculate support department cost allocation rates. A disadvantage of this practice is:
A) Managers are held responsible for actual usage.
B) Support charges are known in advance by managers.
C) If one department uses much less of a support department's services than others, the support charge to remaining departments will increase to compensate.
D) Managers cannot measure the value of support services used.

Question

Quizplus · Accepted Answer

Using actual amounts to allocate support department costs means that if one department uses much less of a support department's services than others, the support charge to remaining departments will increase to compensate. This may not accurately reflect the value of support services used by each department, and could lead to inequitable or inflated charges. Option A is not a disadvantage as managers should be held responsible for actual usage. Option B is also not a disadvantage as it allows managers to plan and budget accordingly. Option D is not a direct disadvantage of using actual amounts to allocate support department costs.

WST Corporation Uses Actual Amounts to Calculate Support Department Cost