Question 1

When using the direct method why would companies choose to perform the allocation with predetermined rates?

Accepted Answer

A) To better communicate the often-forgotten cost of support services to department managers 
B)  To make the budgeting process easier for managers 
C)  To influence a department manager's hiring policies 
D)  To persuade company executives to cut costs 
A) To better communicate the often-forgotten cost of support services to department managers 
B)  To make the budgeting process easier for managers 
C)  To influence a department manager's hiring policies 
D)  To persuade company executives to cut costs A

Question 2

The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion.

Accepted Answer

A) True 
 B)False  True

Question 3

All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs.

Accepted Answer

A) True 
 B)False  True

Question 4

The step-down method of allocating support activity costs is also referred to as the rank-ordering method.

Accepted Answer

A) True 
 B)False

Question 5

In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools.

Accepted Answer

A) True 
 B)False

Question 6

The XYZ Manufacturing Company has two support activity pools, Accounting and Human Resources. Costs for each totaled $380,000 and $190,000 respectively. 10% of the Human Resource costs are consumed by the Accounting department and 15% of the Accounting costs are consumed by the human resource department. The company uses the reciprocal method of allocating support costs. The total costs for the Accounting department which will be allocated to line activities and cost objects will be:

Accepted Answer

A) $399,000 
B)  $405,076 
C)  $414,721 
D)  $231,472 
A) $399,000 
B)  $405,076 
C)  $414,721 
D)  $231,472

Question 7

The XYZ Manufacturing Company has two support activity pools, Accounting (A) and Human Resources (H). Costs for each totaled $420,000 and $270,000 respectively. 20% of the Human Resource costs are consumed by the Accounting department and 10% of the Accounting department costs are consumed by the human resource department. If the company is using the reciprocal method of allocating support costs, the total costs for the Accounting department can be stated as:

Accepted Answer

A) $420,000 + .10 x ($270,000 + .20 x H) 
B)  $420,000 + .20 x ($270,000 +.10 x 
A)  
C)  $420,000 + .10 x ($420,000 + .10 x 
A)  
D)  $420,000 x .20 x ($270,000 + .10 x 
A)  
A) $420,000 + .10 x ($270,000 + .20 x H) 
B)  $420,000 + .20 x ($270,000 +.10 x 
A)  
C)  $420,000 + .10 x ($420,000 + .10 x 
A)  
D)  $420,000 x .20 x ($270,000 + .10 x 
A)

Question 8

A support activity:

Accepted Answer

A)  Is needed to run the business. 
B)  Is directly related to making or selling a product or service. 
C)  Must have all its costs allocated to a line activity. 
D)  Must have all its costs allocated to a line activity or another support activity. 
E)  None of the above is a correct statement relating to a support activity. 
A)  Is needed to run the business. 
B)  Is directly related to making or selling a product or service. 
C)  Must have all its costs allocated to a line activity. 
D)  Must have all its costs allocated to a line activity or another support activity. 
E)  None of the above is a correct statement relating to a support activity.

Question 9

Westminster Manufacturing Company has two support activities and two line activities. The following data pertain to usage patterns for the support and line activities:   The costs of Maintenance are allocated based on square footage used. Human Resources costs are allocated based on number of employees. Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours. If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of Human Resources costs will be allocated to Activity A?

Accepted Answer

A)  $8,000 
B)  $9,454 
C)  $20,000 
D)  $4,545 
E)  None of the above. 
A)  $8,000 
B)  $9,454 
C)  $20,000 
D)  $4,545 
E)  None of the above.

Question 10

The salary expense of which of the following positions would not be considered a support activity cost?

Accepted Answer

A)  Payroll clerk 
B)  Project manager 
C)  Receptionist 
D)  Human resource director 
A)  Payroll clerk 
B)  Project manager 
C)  Receptionist 
D)  Human resource director

Question 11

A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion.

Accepted Answer

A) True 
 B)False

Question 12

Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex.

Accepted Answer

A) True 
 B)False

Question 13

Westminster Manufacturing Company has two support activities and two line activities. The following data pertain to usage patterns for the support and line activities:   The costs of Maintenance are allocated based on square footage used. Human Resources costs are allocated based on number of employees. Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours. If the company uses the direct method of allocating support activities to line activities, what is the predetermined overhead rate for Activity B?

Accepted Answer

A)  $50 
B)  $60 
C)  $60.50 
D)  $10 
E)  None of the above. 
A)  $50 
B)  $60 
C)  $60.50 
D)  $10 
E)  None of the above.

Question 14

Cost allocation rates serve as the explicit "price" for the services line managers obtain from other line activities.

Accepted Answer

A) True 
 B)False

Question 15

A line activity:

Accepted Answer

A)  Generally has its costs allocated to support activities. 
B)  Directly relates to producing services or products. 
C)  Must be allocated costs from all support activities, whether or not the line activity consumed costs of the support activity. 
D)  Must be allocated costs from all support activities for which it consumed costs. 
E)  None of the above is a correct statement relating to a line activity. 
A)  Generally has its costs allocated to support activities. 
B)  Directly relates to producing services or products. 
C)  Must be allocated costs from all support activities, whether or not the line activity consumed costs of the support activity. 
D)  Must be allocated costs from all support activities for which it consumed costs. 
E)  None of the above is a correct statement relating to a line activity.

Question 16

Assume Potter's Manufacturing has a Janitorial Department that supports the Maintenance Department and two line activity departments, Department A and Department
B. Janitorial and Maintenance are allocated to other departments on the basis of square footage of space used. The amount of space used by each department is listed below:
 
The expected cost for the Janitorial Department is expected to be $9,000. Using the step-down method, what is the amount of janitorial costs will be allocated to Maintenance?

Accepted Answer

A)  $0 
B)  $540 
C)  $562.50 
D)  $5,400 
E)  None of the above. 
A)  $0 
B)  $540 
C)  $562.50 
D)  $5,400 
E)  None of the above.

Question 17

The step-down method of allocation improves the direct method by:

Accepted Answer

A)  Considering the reciprocity in consumption partially. 
B)  Simplifying the allocation approach. 
C)  Allocating more of the total cost of the service activity. 
D)  Using a statistical approach to allocation. 
E)  None of the above. 
A)  Considering the reciprocity in consumption partially. 
B)  Simplifying the allocation approach. 
C)  Allocating more of the total cost of the service activity. 
D)  Using a statistical approach to allocation. 
E)  None of the above.

Question 18

The Wilson Manufacturing Company uses the step-down method for allocating support costs and the company has three support departments, Maintenance, Human Resources, and Cafeteria. Assuming that the company allocates costs in that same order, the costs allocated from the cafeteria to line departments and final projects will include:

Accepted Answer

A)  Maintenance, cafeteria and human resource costs 
B)  Only cafeteria costs 
C)  Only cafeteria and human resource costs 
D)  Only human resource and maintenance costs 
A)  Maintenance, cafeteria and human resource costs 
B)  Only cafeteria costs 
C)  Only cafeteria and human resource costs 
D)  Only human resource and maintenance costs

Question 19

It has been determined that Administrative costs of $6,300 have been consumed on a percentage basis by the following departments:   Using the direct method, how much of the administrative costs will be allocated to the Engineering department (rounded)?

Accepted Answer

A) $5,040 
B)  $1,890 
C)  $2,363 
D)  $3,938 
A) $5,040 
B)  $1,890 
C)  $2,363 
D)  $3,938

Question 20

Assume Porter's Consulting uses the number of purchase orders as the cost driver for allocating purchasing costs of $285,000. If Porter issues 1,000 purchase orders, including 300 used by line activity one, 400 used by line activity two, 50 for supplies used by purchasing itself, and 250 used by administration, how much of the cost will be allocated to line activity two using the direct method of allocation?

Accepted Answer

A)  $199,500 
B)  $114,000 
C)  $162,857 
D)  $195,000 
E)  None of the above. 
A)  $199,500 
B)  $114,000 
C)  $162,857 
D)  $195,000 
E)  None of the above.

When using the direct method why would companies choose to perform the allocation with predetermined rates?

The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion.

All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs.

The step-down method of allocating support activity costs is also referred to as the rank-ordering method.

In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools.

A support activity:

The salary expense of which of the following positions would not be considered a support activity cost?

A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion.

Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex.

Cost allocation rates serve as the explicit "price" for the services line managers obtain from other line activities.

A line activity:

The step-down method of allocation improves the direct method by:

It has been determined that Administrative costs of $6,300 have been consumed on a percentage basis by the following departments: Using the direct method, how much of the administrative costs will be allocated to the Engineering department (rounded)?

Accounting: Information for Decision Making

Identification and Estimating Costs and Benefits

Cost Flows and Cost Terminology

Techniques for Estimating Fixed and Variable Costs

Cost-Volume-Profit Analysis

Decision Making in the Short Term

Operating Budgets: Bridging Planning and Control

Budgetary Control and Variance Analysis

Cost Allocations: Theory and Applications

Activity-Based Costing and Management

Managing Long-Lived Resources: Capital Budgeting

Performance Evaluation in Decentralized Organizations

Strategic Planning and Control

Job Costing

Process Costing

Filters

Exam 16: Support Activity and Dual Rate Allocations

When using the direct method why would companies choose to perform the allocation with predetermined rates?

The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion.

All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs.

The step-down method of allocating support activity costs is also referred to as the rank-ordering method.

In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools.

A support activity:

The salary expense of which of the following positions would not be considered a support activity cost?

A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion.

Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex.

Cost allocation rates serve as the explicit "price" for the services line managers obtain from other line activities.

A line activity:

The step-down method of allocation improves the direct method by:

It has been determined that Administrative costs of $6,300 have been consumed on a percentage basis by the following departments: Using the direct method, how much of the administrative costs will be allocated to the Engineering department (rounded)?

Accounting: Information for Decision Making

Identification and Estimating Costs and Benefits

Cost Flows and Cost Terminology

Techniques for Estimating Fixed and Variable Costs

Cost-Volume-Profit Analysis

Decision Making in the Short Term

Operating Budgets: Bridging Planning and Control

Budgetary Control and Variance Analysis

Cost Allocations: Theory and Applications

Activity-Based Costing and Management

Managing Long-Lived Resources: Capital Budgeting

Performance Evaluation in Decentralized Organizations

Strategic Planning and Control

Job Costing

Process Costing

Filters