Exam 10: Managing and Allocating Support-Service Costs

The step method of allocation ignores services provided by one support service department to another.

Few companies allocate the cost of corporate headquarters to divisions because the allocations cause low morale for employees.

Mansfield River Corporation maintains computer equipment and provides services in all 50 states and in 20 countries. The Corporation has a fleet of 3 Corporate Jets and 2 Helicopters and employs 6 full time pilots who receive salary and benefits. The most appropriate way to allocate the total cost of the corporate jets, helicopters and pilots to individual user departments would be:

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.

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.

Use the following to answer questions: A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows: Direct costs in the various departments are as follows: -If the step-method of allocation is used, the amount allocated from S2 to P2 would be:

Use the following to answer questions: A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows: Direct costs in the various departments are as follows: -In what order should the three service departments be allocated, assuming the step-method is used?

Which of the following would be the most effective combination of cost-driver bases?

What is the amount of maintenance that would be allocated to the machining department, assuming Hampton uses the step-method to allocate the costs of service departments?

What will be the difference in the total service department costs allocated between the step-method and the direct-method?

Amherst Corporation has two production departments, Assembly and Finishing and three Service Departments, Personnel, Maintenance and Cafeteria. Data relevant to Amherst are: Required: Allocate the service department costs of Amherst Corporation using the step-method of cost allocation.

Use the following to answer questions: A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows: Direct costs in the various departments are as follows: -If the step-method of allocation is used, how much would be allocated from S1 to S3?

Barletta Corporation has one service department and three producing departments. The budget for the following year allocates the service department costs to the producing departments based on the number of employees in each department. Currently, the budget for the service department is $2,400,000 and the number of employees in each department is as follows: Department 1: 100 Department 2: 50 Department 3: 150 During the year, due to sudden expanded growth, Department 2 has had to add 50 new employees; however the service department costs have not increased due to budget constraints. Required: a) What were the expected service department allocations at the beginning of the year to each production department? b) What will be the actual allocations based on the number of employees each department has at year end? c) Comment on the reasonableness of the situation. What are the potential causes of any problems created by this allocation method?

Use the following to answer questions: A summary of the usage of the service department services by other services departments as well as by two producing departments is as follows: Direct costs in the various departments are as follows: -If the direct-method is used, how much of S1's costs would be allocated to S2?

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.

Which of the following statements about the choice of cost-allocation method is false?

Use the following to answer questions: The following costs were incurred in three operating departments and three service departments in Gagetown Molding Company: The use of services by other departments is as follows: The following questions refer to a system of simultaneous linear equations that allocate costs using the reciprocal method. -The equation for department P2 (final assembly) is:

The direct method of cost allocation charges cost of support-service departments to internal customers without making allocations among service departments.

Use the following to answer questions: Brandeis Corporation has two production Departments: P1 and P2 and two service departments: S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows: -Under the step-method of allocation, the total amount of service costs allocated to producing departments would be:

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 department costs are allocated by data purchased, the Corporate report department will receive an allocation of: