Question 1

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  False

Question 2

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.

Accepted Answer

A) True 
 B)False  True

Question 3

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  True

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

A line activity relates indirectly to producing services or products.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

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:
$$\begin{array} { l c } 
\text { Department } & \text { Square Footage Used } \
\text { Janitorial } & 600 \
\text { Maintenance } & 900 \
\text { Department A } & 4,500 \
\text { Department B } & 9,000
\end{array}$$
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 15

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

Accepted Answer

A) We ignore such self-consumption. 
B) Not allocating the self-consumption negatively affects the accuracy of allocations. 
C) We must allocate the self-consumption costs to line activities. 
D) A and B only. 
E) None of the above. 
A) We ignore such self-consumption. 
B) Not allocating the self-consumption negatively affects the accuracy of allocations. 
C) We must allocate the self-consumption costs to line activities. 
D) A and B only. 
E) None of the above.

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\hline
&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\hline
\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \
\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \
\text { Number of Employees } & 10 & 20 & 100 & 150 \
\text { Direct Labor Hours } & & & 2,000 & 4,000
\end{array}$ 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 20

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\hline
&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\hline
\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \
\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \
\text { Number of Employees } & 10 & 20 & 100 & 150 \
\text { Direct Labor Hours } & & & 2,000 & 4,000
\end{array}$ 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.

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

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.

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.

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

A line activity:

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

A support activity:

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.

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

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

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

A line activity relates indirectly to producing services or products.

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

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

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

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

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

Accounting: Information for Decision Making

Identifying 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

Activity-Based Costing Management

Capital Budgeting

Performance Evaluation in Decentralized Organizations

Strategic Planning and Control

Job-Costing Systems

Process-Costing Systems

Filters

Exam 16: Refining Systems: Support Activity

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

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.

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.

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

A line activity:

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

A support activity:

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.

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

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

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

A line activity relates indirectly to producing services or products.

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

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

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

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

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

Accounting: Information for Decision Making

Identifying 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

Activity-Based Costing Management

Capital Budgeting

Performance Evaluation in Decentralized Organizations

Strategic Planning and Control

Job-Costing Systems

Process-Costing Systems

Filters