Question 1

The reciprocal method of support department cost-allocation is the most precise method and therefore is used most often.

Accepted Answer

A) True 
 B)False  False

Question 2

Answer the following questions using the information below:
Canberra Home Appliances sells a refrigerator and a freezer as a single package for $1100.Other data are in the chart below.
 $$\begin{array} { | c | c | c | c | } 
\hline & \text { Refrigerator } & \text { Full-size Freezer } & \text { Packaged Price } \
\hline \text { Selling price } & \$ 925 & \$ 450 & \$ 1100 \
\hline \text { Manufactuning cost per unit } & \$ 620 & \$ 220 & \
\hline \text { Stand-alone product reverues } & \$ 1225000 & \$ 775000 & \
\hline
\end{array}$$
-Using the stand-alone method with selling price as the weight for revenue allocation,what amount will be allocated to the refrigerator?

Accepted Answer

A) $500.00 
B) $625.00 
C) $740.00 
D) $925.00 
A) $500.00 
B) $625.00 
C) $740.00 
D) $925.00 C

Question 3

The incremental cost-allocation method determines the weights for cost allocation by considering each user of the cost as a separate entity.

Accepted Answer

A) True 
 B)False  False

Question 4

The only choices that a firm has for support department cost-allocation rates are to use either a budgeted rate or an actual rate.

Accepted Answer

A) True 
 B)False

Question 5

The Product Data centre has been servicing the Billabong Casting Department for five years.Beginning next year,the company is adding a Billabong Moulding Department to complement the materials produced by the Billabong Casting Department.As a result,data centre costs are expected to increase from $950 000 per year to $1 150 000 per year.The Billabong Moulding Department will use 20% of the data centre efforts.
Required:
a.Using the stand-alone cost-allocation method,identify the amount of data centre cost that will be allocated to Billabong Casting and the Billabong Moulding Department next year.
b.Using the incremental cost-allocation method,identify the amount of data centre cost that will be allocated to Billabong Casting and the Billabong Moulding Department next year.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.Billabong Casting Department = $1 150

Question 6

Answer the following questions using the information below:
The Carpentaria Corporation currently uses a manufacturing facility costing $550 000 per year;80% of the facility's capacity is currently being used.A start-up business has proposed a plan that would utilise the other 20% of the facility and increase the overall costs of maintaining the space by 5%.
-If the incremental method were used,what amount of cost would be allocated to the start-up business?

Accepted Answer

A) $27 500 
B) $80 000 
C) $84 000 
D) $100 000 
A) $27 500 
B) $80 000 
C) $84 000 
D) $100 000

Question 7

Common costs exist because each user obtains a lower cost by sharing than the separate cost that would result if such user were an independent entity.

Accepted Answer

A) True 
 B)False

Question 8

The direct method does not allocate support-department costs to other support departments.

Accepted Answer

A) True 
 B)False

Question 9

Describe methods which may be used to allocate support costs within organisations containing multiple support departments.What are the advantages and disadvantages of these methods?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Three methods which are used to allocate

Question 10

Answer the following questions using the information below:
The Darwin Harbour Corporation currently leases a corporate suite in an office building for a cost of $90 000 a year.Only 70% of the corporate suite is currently being used.A start-up business has proposed a plan that would use the other 30% of the suite and increase the overall costs of maintaining the space by $10 000.
-If the stand-alone method were used,what amount of cost would be allocated to the start-up business?

Accepted Answer

A) $10 000 
B) $37 000 
C) $30 000 
D) $27 000 
A) $10 000 
B) $37 000 
C) $30 000 
D) $27 000

Question 11

The direct allocation method provides key information for outsourcing decisions regarding support services.

Accepted Answer

A) True 
 B)False

Question 12

What is a 'common cost?' What are two methods that a manager can use to allocate common costs to two or more users?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

A common cost is the cost of a cost obje

Question 13

Which of the following departments is not an operating (or value-added)department?

Accepted Answer

A) Finishing 
B) Assembly 
C) Accounting 
D) Machining 
A) Finishing 
B) Assembly 
C) Accounting 
D) Machining

Question 14

The incremental method of allocating common costs often creates the incentive to be the first-ranked user.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a cost that contract parties typically agree to include in the costs to be reimbursed?

Accepted Answer

A) An unallowable cost 
B) A stand-alone cost 
C) An incremental cost 
D) An allowable cost 
A) An unallowable cost 
B) A stand-alone cost 
C) An incremental cost 
D) An allowable cost

Question 16

Which of the following is NOT one of the three methods of allocating support department costs to operating departments?

Accepted Answer

A) Direct method 
B) Incremental method 
C) Reciprocal method 
D) Step-down method 
A) Direct method 
B) Incremental method 
C) Reciprocal method 
D) Step-down method

Question 17

The cost-allocation method that allocates support department costs only to production departments is the:

Accepted Answer

A) sequential method. 
B) reciprocal method. 
C) step-down method. 
D) direct method. 
A) sequential method. 
B) reciprocal method. 
C) step-down method. 
D) direct method.

Question 18

Answer the following questions using the information below:
Dawn,owner of Fraser Fabric Pty Ltd is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
 Budgeted manufacturing overhead costs:
$\begin{array} { l l l } \text { Maintenance } & \mathrm { M } \text { (Support Dept) } & \$ 150000 \ \text { Personnel } & \mathrm { P } \text { (Support Dept) } & \$ 65000 \ \text { Weaving } & \text { W(Weaving Dept) } & \$ 325000 \ \text { Colourising } & \text { C (Colourising Dept) } & \$ 175000 \end{array}$

Services furnished:
By Maintenance (budgeted labour-hours):
to Persontrel 500
to Weaving 3500
to Colourising 2000

By Personnel (number of employees serviced):
$\begin{array} { l l } \text { Plant Maintenance } & 5 \ \text { Weaving } & 15 \ \text { Colourising } & 10 \end{array}$
-Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?

Accepted Answer

A) P = $65 000 
B) P = (500/6000)M 
C) P = $65 000 + (500/6000)M 
D) P = $150 000 - $65 000 (500/6000)M 
A) P = $65 000 
B) P = (500/6000)M 
C) P = $65 000 + (500/6000)M 
D) P = $150 000 - $65 000 (500/6000)M

Question 19

Answer the following questions using the information below:
Adelaide Educational Software Outlet sells two or more of the video games as a single package.Managers are keenly interested in individual product-profitability figures.Information pertaining to three bundled products and the stand-alone prices is as follows:
 $$\begin{array} { | c | c | c |c| c | c | } 
\hline & \begin{array} { c } 
\text { Stand-Alone } \
\text { Selling Price }
\end{array} & \text { Cost } && \text { Package } & \begin{array} { c } 
\text { Packaged } \
\text { Price }
\end{array} \
\hline \text { Reading Fun } & \$ 55 & \$ 7.20 && \text { 1. Reading Fun \& Math Fun } & \$ 98 \
\hline \text { Math Fun } & \$ 65 & \$ 8.00 && \text { 2. Reading Fun \& Science } & \$ 122 \
\hline \text { Science } & \$ 95 & \$ 10.00 && \text { 3. All three } & \$ 162 \
\hline
\end{array}$$
-Using the stand-alone method with selling price as the weight for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)?

Accepted Answer

A) $38.50 
B) $44.91 
C) $55 
D) $40 
A) $38.50 
B) $44.91 
C) $55 
D) $40

Question 20

Answer the following questions using the information below:
Murray River Cruises Company has two service departments,Maintenance and Personnel.Maintenance Department costs of $160 000 are allocated on the basis of budgeted maintenance-hours.Personnel Department costs of $40 000 are allocated based on the number of employees.The costs of operating departments A and B are $80 000 and $120 000,respectively.Data on budgeted maintenance-hours and number of employees are as follows:
  
-Using the direct method,what amount of Maintenance Department costs will be allocated to Department B?

Accepted Answer

A) $96 000 
B) $64 000 
C) $48 000 
D) $78 000 
A) $96 000 
B) $64 000 
C) $48 000 
D) $78 000

The reciprocal method of support department cost-allocation is the most precise method and therefore is used most often.

The incremental cost-allocation method determines the weights for cost allocation by considering each user of the cost as a separate entity.

The only choices that a firm has for support department cost-allocation rates are to use either a budgeted rate or an actual rate.

Common costs exist because each user obtains a lower cost by sharing than the separate cost that would result if such user were an independent entity.

The direct method does not allocate support-department costs to other support departments.

Describe methods which may be used to allocate support costs within organisations containing multiple support departments.What are the advantages and disadvantages of these methods? _ _

The direct allocation method provides key information for outsourcing decisions regarding support services.

What is a 'common cost?' What are two methods that a manager can use to allocate common costs to two or more users? _ _

Which of the following departments is not an operating (or value-added)department?

The incremental method of allocating common costs often creates the incentive to be the first-ranked user.

Which of the following is a cost that contract parties typically agree to include in the costs to be reimbursed?

Which of the following is NOT one of the three methods of allocating support department costs to operating departments?

The cost-allocation method that allocates support department costs only to production departments is the:

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 14: Allocation of Support-Department Costs, Common Costs and Revenues

The reciprocal method of support department cost-allocation is the most precise method and therefore is used most often.

The incremental cost-allocation method determines the weights for cost allocation by considering each user of the cost as a separate entity.

The only choices that a firm has for support department cost-allocation rates are to use either a budgeted rate or an actual rate.

Common costs exist because each user obtains a lower cost by sharing than the separate cost that would result if such user were an independent entity.

The direct method does not allocate support-department costs to other support departments.

The direct allocation method provides key information for outsourcing decisions regarding support services.

Which of the following departments is not an operating (or value-added)department?

The incremental method of allocating common costs often creates the incentive to be the first-ranked user.

Which of the following is a cost that contract parties typically agree to include in the costs to be reimbursed?

Which of the following is NOT one of the three methods of allocating support department costs to operating departments?

The cost-allocation method that allocates support department costs only to production departments is the:

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters