Question 1

The step method ignores any services provided to the largest service department from other service departments.

Accepted Answer

The step method allocates costs from service departments to production departments sequentially, often ignoring reciprocal services between service departments.

Question 2

The step order in the step method is from least general service department to most general service department.

Accepted Answer

The step method allocates costs starting from the most general service department, moving towards the least general service department.

Question 3

The step method considers all interactions among service departments.

Accepted Answer

The step method only considers interactions in one direction, allocating costs sequentially, and does not fully account for reciprocal interactions among service departments.

Question 4

The direct-method ignores interactions among service departments.

Accepted Answer

The direct method allocates service department costs only to operating departments, ignoring interactions among service departments themselves.

Question 5

When using the step-method of allocation, once the organization makes an allocation from a support-service department, no subsequent allocations are made back to that department.

Accepted Answer

In the step-method of allocation, once a support-service department's costs have been allocated to other departments, no allocations are made back to it, reflecting a one-directional flow of cost allocations.

Question 6

Under-the step method of allocation, the final amount allocated to any user department depends on the order in which the allocation is made from the service departments.

Accepted Answer

In the step method of allocation, the order in which service departments are allocated to user departments affects the final allocation amounts because once a service department's costs are allocated, they do not receive any allocations from other service departments allocated afterward.

Question 7

Activity-Based-Costing (ABC) cost drivers should reflect cause and effect relations between resource spending and use.

Accepted Answer

Activity-Based Costing (ABC) uses cost drivers to trace activities to products or services, emphasizing the cause-and-effect relationship between the costs incurred and the activities that drive those costs.

Question 8

Accuracy should be the only consideration in choosing the appropriate approach for allocating support service costs.

Accepted Answer

While accuracy is important in allocating support service costs, other factors such as simplicity, fairness, and the ability to motivate desired behaviors in managers should also be considered.

Question 9

While costly to set up, once implemented, a complex cost allocation system is inexpensive to maintain.

Accepted Answer

A complex cost allocation system, while already costly to set up, can also be expensive to maintain due to the need for ongoing data collection, analysis, and adjustments to accurately allocate costs across various departments, products, or services.

Question 10

The reciprocal method of cost allocation recognizes and allocates costs of all services provided by any support-service department, including those provided to other service departments.

Accepted Answer

The reciprocal method of cost allocation fully accounts for the mutual services provided among all support-service departments, including the services exchanged between these departments, by solving a set of simultaneous equations to allocate costs accurately.

Question 11

The equation used to represent total departmental costs using the reciprocal method is: total department costs equals direct costs of the department minus the service costs to be allocated to the department.

Accepted Answer

The reciprocal method involves allocating service department costs to both operating departments and other service departments, accounting for interdepartmental services. The equation for total departmental costs includes direct costs plus allocated service costs, not minus.

Question 12

Which of the following is not an appropriate justification for allocating support-service costs?

Accepted Answer

Allocating support-service costs is typically done for reasons such as influencing manager behavior, facilitating budgeting, and complying with regulations, rather than to minimize accounting costs. The primary goal of such allocations is to provide accurate and relevant information for decision-making, not necessarily to reduce the costs of the accounting process itself.

Question 13

Which of the following is the first step in the process of allocating service costs?

Accepted Answer

Identifying the costs to be allocated to internal customers is the first step in the process of allocating service costs. This involves determining which costs are directly associated with providing services to internal departments or units within the organization.

Question 14

Which of the following statements is true regarding the use of multiple cost-pools?

Accepted Answer

Multiple cost pools are used when there are different levels of resource usage, such as facility-level and unit-level components, to more accurately allocate costs.

Question 15

Which of the following would not be an appropriate cost-allocation base for the Personnel department costs?

Accepted Answer

Space occupied is not directly related to the activities of the Personnel department, which typically deals with employee-related services, making it an inappropriate cost-allocation base for Personnel department costs.

Question 16

Which of the following would not be an appropriate cost-allocation base for allocating the cost of the corporate library in a consulting company with multiple divisions?

Accepted Answer

Square footage occupied by each division is not an appropriate cost-allocation base for allocating the cost of the corporate library, as the use of library resources is not related to the amount of space a division occupies.

Question 17

Which of the following shows an inappropriate cost allocation base?

Accepted Answer

The answer of Which of the following shows an inappropriate...

Question 18

Use the following to answer questions:
Sovereign Credit Checks produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.
 
-Which cost-allocation based would the manager of the Individual Department prefer the most?

Accepted Answer

The manager of the Individual Department would likely prefer "Interview hours" as a cost-allocation base because it may more accurately reflect the department's activities and resource usage, potentially leading to a more favorable allocation of costs.

Question 19

Use the following to answer questions:
Sovereign Credit Checks produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.
 
-The manager of the Corporate Report Department would least prefer which method of allocation?

Accepted Answer

The answer of Use the following to answer questions:
Sovereign Credit...

Question 20

Use the following to answer questions:
Sovereign Credit Checks produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.
 
-If service costs are allocated according to the number of reports, the service department cost to be allocated to the Individual report department will be:

Accepted Answer

The service department cost to be allocated to the Individual report department is $2,694,737. This is because the service costs are allocated according to the number of reports, and the Individual report department has the highest number of reports.

Quiz 10: Managing and Allocating Support-Service Costs