Exam 10: Managing and Allocating Support-Service Costs

When using the step-method of allocation, once the organization makes an allocation from a support-service department, no subsequent allocations are made back to that department.

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 S1 (Building occupancy) is:

The step method considers all interactions among service departments.

Which of the following would not be an appropriate cost-allocation base for allocating the cost of the corporate library in a consulting company with multiple divisions?

An advantage of the Activity-Based-Costing approach to developing cost pools is that it is cheaper and easier to apply than traditional methods.

The direct method ignores services provided by one support service department to another.

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 costs are allocated according to the number of reports, the service department cost to be allocated to the Individual report department will be:

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 S2 (Research and Development) is:

The number of machine hours would be an appropriate cost allocation base for allocating the cost of maintenance on equipment.

The value of equipment would be an appropriate cost allocation base for allocating the cost of insurance on equipment.

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. -The manager of the Corporate Report Department would least prefer which method of allocation?

The equation for Department S3 (Supervision) is:

Occupancy related support-service costs are most appropriately allocated using a space occupied type of cost-allocation base.

Support-service department costs are usually facility-level resource decisions.

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: -Assuming the direct-method of allocation is used, what will be the total costs in production department 1 after all allocations have been made?

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. -Which cost-allocation based would the manager of the Individual Department prefer the most?

The use of support-service department resources is not necessarily the same as the supply of those resources.

The step order in the step method is from least general service department to most general service department.

What is the total amount of service department costs that would be allocated to the assembly department, assuming Hampton uses the direct-method to allocate the service department costs?

It is now common for many companies to outsource some or all of their internal support services, particularly those that require routine, straightforward procedures. Many companies are also outsourcing human resources, legal, tax and internal audit functions. Several factors affect a company's decision to outsource. Name four factors management must consider when making the decision to outsource and provide an argument for and against outsourcing related to each factor.