ALLOCATION OF SUPPORT DEPARTMENT COSTS

ALLOCATION OF SUPPORT DEPARTMENT

COSTS,

COMMON COSTS, AND REVENUES

TRUE/FALSE

1.

The dual cost-allocation method classifies costs into two pools, a budgeted cost

pool and an actual cost pool.

Answer

:

False

Difficulty

:

1

Objective

:

1

Terms to Learn

:

dual-rate cost-allocation method

The dual cost-allocation method classifies costs into two pools, a variable cost

pool and a fixed cost pool.

2.

Using the single-rate method transforms the fixed costs per hour into a variable

cost to users of that facility.

Answer

:

True

Difficulty

:

3

Objective

:

1

Terms to Learn

:

single-rate cost-allocation method

3.

The single- rate cost-allocation method provides better information for decision

making than the dual-rate method.

Answer

:

False

Difficulty

:

2

Objective

:

1

Terms to Learn

:

single-rate cost-allocation method, dual-rate cost-allocation

method

The dual-rate cost- allocation method provides better information for decision

making than the single-rate method.

4.

An advantage of the single-rate method is that it is easier and always the most

accurate cost-allocation choice.

Answer

:

False

Difficulty

:

2

Objective

:

1

Terms to Learn

:

single-rate method

The single-rate method is the easiest cost allocation method, but it is the least

accurate cost-allocation choice.

5.

6.

7.

8.

9.

When budgeted cost- allocation rates are used, user-division managers face

uncertainty about the allocation rates for that budget period.

Answer

:

False

Difficulty

:

2

Objective

:

2

Terms to Learn

:

single-rate cost-allocation method, dual-rate cost-allocation

method

When budgeted cost-allocation rates are used, user-division managers face

no

uncertainty

about the allocation rates for that budget period.

When budgeted cost-allocation rates are used, managers of the supplier division

are motivated to improve efficiency.

Answer

:

True

Difficulty

:

2

Objective

:

2

Terms to Learn

:

single-rate cost-allocation method, dual-rate cost-allocation

method

When budgeted cost-allocation rates are used, variations in actual usage by one

division affect the costs allocated to other divisions.

Answer

:

False

Difficulty

:

2

Objective

:

2

Terms to Learn

:

single-rate cost-allocation method, dual-rate cost-allocation

method

When

actual

cost- allocations rates are used, variations in actual usage by one

division affect the costs allocated to other divisions.

The only choices that a firm has for support department cost allocation rates are

to use either a budgeted rate or an actual rate.

Answer

:

False

Difficulty

:

2

Objective

:

2

Terms to Learn

:

single-rate method, dual-rate method

The choices a firm has for support department cost allocation rates include using

a budgeted rate, an actual rate, or some negotiated rate.

The direct allocation method highlights

recognition of services rendered by

support departments to other support departments.

Answer

:

False

Difficulty

:

2

Objective

:

3

Terms to Learn

:

direct allocation method

The direct allocation method allows for no recognition of services rendered by

support departments to other support departments.

10.

The reciprocal allocation method incorporates mutual services provided among

all support departments.

Answer

:

True

Difficulty

:

2

Objective

:

3

Terms to Learn

:

reciprocal allocation method

11.

Budgeted amounts for a support department will always exceed complete

reciprocated costs for that department.

Answer

:

False

Difficulty

:

3

Objective

:

3

Terms to Learn

:

complete reciprocated costs, support department

Complete reciprocated costs equal budgeted amounts for the support department

plus any interdepartmental cost allocations, therefore, complete reciprocated

costs always exceed budgeted amounts.

12.

The direct allocation method provides key information for outsourcing decisions

regarding support services.

Answer

:

False

Difficulty

:

3

Objective

:

3

Terms to Learn

:

support department, direct allocation method

Complete reciprocal costs

of a support department provide key information for

outsourcing decisions regarding support services. The direct allocation method

does not provide this information.

13.

The incremental method of allocating common costs often creates the incentive

to be the first-ranked user.

Answer

:

False

Difficulty

:

3

Objective

:

3

Terms to Learn

:

incremental cost-allocation method

The incremental method creates a

disincentive

to be the first-ranked user

because the first-ranked user receives the greatest allocation of cost.

14.

The direct method allocates each support department’s costs to operating

departments and to support departments.

Answer

:

False

Difficulty

:

2

Objective

:

3

Terms to Learn

:

direct method

The direct method allocates each support department’s costs to operating

departments but not to other support departments.

15.

The step-down method allocates support department costs to other support

departments and to operating departments in a sequential manner.

Answer

:

True

Difficulty

:

2

Objective

:

3

Terms to Learn

:

step-down method

16.

The reciprocal method of support department cost allocation is the most precise

method and therefore is used most often.

Answer

:

False

Difficulty

:

2

Objective

:

3

Terms to Learn

:

reciprocal method

The reciprocal method of support department cost allocation is the most precise

method but is not often used due to its relative complexity.

17.

The stand-alone method of allocating common costs emphasizes fairness and

equity among users.

Answer

:

True

Difficulty

:

2

Objective

:

4

Terms to Learn

:

stand-alone cost- allocation method

18.

Under the incremental method, the first incremental user usually receives the

highest allocation of the common costs.

Answer

:

False

Difficulty

:

2

Objective

:

4

Terms to Learn

:

incremental cost-allocation method

Under the incremental method of allocating common costs, the

primary

user

receives the highest allocation of the common costs.

19.

A common cost is a cost of operating a facility or activity that is shared by two

or more users.

Answer

:

True

Difficulty

:

2

Objective

:

4

Terms to Learn

:

common cost

20.

The stand-alone cost allocation method ranks the individual users of a cost

object in order of users most responsible for a common cost and then uses these

rankings to allocate the costs among the users.

Answer

:

True

Difficulty

:

2

Objective

:

4

Terms to Learn

:

stand-alone cost-allocation method

MULTIPLE CHOICE

21.

The method that allocates costs in each cost pool using the same rate per unit is

known as the:

a.

incremental cost-allocation method

b.

reciprocal cost-allocation method

c.

single-rate cost allocation method

d.

dual-rate cost-allocation method

22.

23.

Answer

:

c

Difficulty

:

2

Terms to Learn

:

single-rate cost-allocation method

Objective

:

1

The dual-rate cost-allocation method classifies costs in each cost pool into a:

a.

budgeted-cost pool and an actual-cost pool

b.

variable-cost pool and a fixed-cost pool

c.

used-capacity-cost pool and a practical-capacity-cost pool

d.

direct-cost pool and a reciprocal-cost pool

Answer

:

b

Difficulty

:

1

Terms to Learn

:

dual-rate cost-allocation method

Objective

:

1

The single-rate cost-allocation method may base the denominator choice on:

a.

master-budget capacity utilization

b.

normal capacity utilization

c.

practical capacity

d.

All of these answers are correct.

Answer

:

d

Difficulty

:

2

Terms to Learn

: single-rate cost-allocation method

Objective

:

1

24.

25.

26.

When using the single-rate method, fixed cost allocation may be based on:

a.

actual usage

b.

budgeted usage

c.

incremental cost allocation

d.

Either a or b are correct.

Answer

:

d

Difficulty

:

1

Terms to Learn

:

single-rate cost-allocation method

Objective

:

1

Benefits of the single-rate method include:

a.

the low cost of implementation

b.

fixed costs that are transformed into variable costs for user decision

making

c.

signals regarding how variable and fixed costs behave differently

d.

information that leads to outsourcing decisions that benefit the

organization as a whole

Answer

:

a

Difficulty

:

3

Terms to Learn

:

single-rate cost-allocation method

Objective

:

1

Benefits of the dual-rate method include:

a.

variable costs that are transformed into fixed costs for user decision

making

b.

the low cost of implementation

c.

avoidance of expensive analysis for categorizing costs as either fixed or

variable

d.

information that leads to outsourcing decisions that benefit the

organization as a whole

Answer

:

d

Difficulty

:

3

Objective

:

1

Terms to Learn

:

dual-rate cost-allocation method

THE

FOLLOWING

INFORMA

TION

APPLIES

TO

QUESTIONS

36

THROUGH

39:

The

Bonawitz

Corporation

has

a

central

copying

facility

.

The

copying

facility

has

only

two

users,

the

Marketing

Department

and

the

Operations

Department.

The

following data apply to the coming budget year:

Budgeted costs of operating the copying facility

for 200,000 to 300,000 copies

:

Fixed costs per year

$$30,000

Variable costs

3 cents (.03) per

copy

Budgeted long-run usage in copies per year

: