Exam 16: Support Activity and Dual Rate Allocations

Under the direct method of allocating support activity costs, any consumption by other support departments are allocated to both support and line activities.

A line activity relates indirectly to producing services or products.

The purchasing department is an example of a support activity for a manufacturing company.

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 fraction of Maintenance will be allocated to Activity A?

The cost driver used to allocate costs of support activities should bear an economic relation to the revenue generated.

The direct and step-down methods of allocating support activity costs differ from the reciprocal method in that the reciprocal method uses a dual-rate allocation.

One answer to the problem of using a single cost driver to allocate support activity costs is to use a dual-rate allocation.

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 total support activity costs will be allocated to Line Activities?

When a support department's activities are not fully consumed by other departments (that is, the support department self-consumes some costs):

The reciprocal method of allocating support activity costs is conceptually the most appealing method because it takes into account all of the reciprocity in consumption.

It may be more appropriate for firms to employ long-term expected demand to allocate fixed capacity costs, and actual demand to allocate short-term variable costs.

In a home construction company, support costs accumulated by the IT department can be allocated to all except which of the following departments when using the direct method?

The Peterson Company maintains a gym for its employees use. In August, the cost of operations was budgeted at $12 per employee based on an average of 400 employees. During the month 380 employees worked in departments outside of the gym and actual costs totaled $6,000. How much of the cost of the gym should be allocated to other departments at the end of the month? a. $6,316 B) $6,000 C) $4,800 D) $4,560

The costs of the Purchasing department are allocated based on the number of purchase orders. In December, 1,350 purchase orders are issued for the following departments: What is the consumption percentage for the Accounting department?

For the month of October, the Accounting and IT departments incurred costs of $180,000 and $260,000, respectively. The company uses the step-down method to allocate support costs with the accounting costs being allocated first followed by the IT costs. Costs are being consumed in the following manner: Using the step-down method, how much of the total support activity costs (Accounting and IT) will be allocated to the Fabrication department?

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 fraction of Human Resources costs will be allocated to Activity B?

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

The reciprocal method of allocating support costs is considered superior to other methods because:

Which of the following is not a method used to allocate support activity costs?

The costs of the Purchasing department ($140,625) are allocated based on the number of purchase orders. In December, 2,400 purchase orders are issued in support of the following departments: Using the direct method, what will be the cost per purchase order?