Question 1

Contract disputes often arise with respect to:

Accepted Answer

A) personalities. 
B) revenue sharing. 
C) cost allocation. 
D) cost-cutting. 
A) personalities. 
B) revenue sharing. 
C) cost allocation. 
D) cost-cutting.

Question 2

A way to implement the __________ method is to formulate and solve linear equations.

Accepted Answer

A) stand-alone 
B) reciprocal 
C) direct 
D) step-down 
A) stand-alone 
B) reciprocal 
C) direct 
D) step-down

Question 3

If costs are used as a basis for pricing,then charging user divisions for unused capacity could result in:

Accepted Answer

A) chaos. 
B) confusion. 
C) the downward demand spiral. 
D) misallocations. 
A) chaos. 
B) confusion. 
C) the downward demand spiral. 
D) misallocations.

Question 4

The choice between actual usage and budgeted usage for allocating fixed costs can affect a manager's decisions.

Accepted Answer

A) True 
 B)False

Question 5

Answer the following questions using the information below:
Woolloongabba Lighting operates one central plant that has two divisions,the Night Light Division and the HalfLight Division.The following data apply to the coming budget year:
 Budgeted costs of operating the plant for 2000 to 3000 hours:

Fixed operating costs per year $\$ 900000$
Variable operating costs $\$ 1200$ perhour

Budgeted long-run usage per year:

Night Light Division 2000 hours
HalfLight Division 500 hours
Practical capacity 3000hours Assume that practical capacity is used to calculate the allocation rates.Actual usage for the year by the Night Light Division was 1400 hours and by the HalfLight Division was 600 hours.
-If a single-rate cost-allocation method is used,what amount of cost will be allocated to the Night Light Division? Assume actual usage is used to allocate operating costs.

Accepted Answer

A) $3 000 000 
B) $2 280 000 
C) $2 400 000 
D) $2 100 000 
A) $3 000 000 
B) $2 280 000 
C) $2 400 000 
D) $2 100 000

Question 6

The advantage of using practical capacity to allocate costs is that it focuses management's attention on managing unused capacity

Accepted Answer

A) True 
 B)False

Question 7

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 step-down method,what amount of Maintenance Department cost will be allocated to Department A if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

Accepted Answer

A) $57 334 
B) $42 667 
C) $32 000 
D) $64 000 
A) $57 334 
B) $42 667 
C) $32 000 
D) $64 000

Question 8

The only methods available when allocating the revenues across a bundled product offering are: 1)the stand-alone revenue-method;and 2)the incremental revenue-allocation method.

Accepted Answer

A) True 
 B)False

Question 9

What is the name of the method that allocates costs in each cost pool using the same rate per unit?

Accepted Answer

A) Dual-rate cost-allocation method 
B) Reciprocal cost-allocation method 
C) Incremental cost-allocation method 
D) Single-rate cost allocation method 
A) Dual-rate cost-allocation method 
B) Reciprocal cost-allocation method 
C) Incremental cost-allocation method 
D) Single-rate cost allocation method

Question 10

Approaches used to rank products for revenue allocation might include:

Accepted Answer

A) surveying customers on the importance of each product. 
B) having managers use their knowledge and intuition. 
C) using recent data on stand-alone sales performance. 
D) All of these answers are correct. 
A) surveying customers on the importance of each product. 
B) having managers use their knowledge and intuition. 
C) using recent data on stand-alone sales performance. 
D) All of these answers are correct.

Question 11

The direct allocation method highlights recognition of services rendered by support departments to other support departments.

Accepted Answer

A) True 
 B)False

Question 12

Mac Fleetwood has managed a downtown store in Sydney for several years.The firm has 10 stores in several locations around the city.In the past,senior management noticed Mac Fleetwood's work and he has received very good annual evaluations for his management of the store.
This year his store has generated steady growth in sales,but earnings have been deteriorating.After examining the monthly performance report generated by the company budgeting department,he noticed that increasing fixed costs is causing the decrease in earnings.
Administrative corporate costs,primarily fixed costs,are allocated to individual stores each month based on actual sales for that month.Two of these stores are growing rapidly,while four other stores are having operating difficulties.
Required:
From the information presented,what do you think is the cause of Mac Fleetwood's reported decrease in earnings? How can this be corrected?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The variations in reporting are probably

Question 13

Armidale University offers only high-tech graduate-level programs.Armidale has two principal operating departments,Engineering and Computer Sciences,and two support departments,Facility and Technology Maintenance and Enrollment Services.The base used to allocate Facility and Technology Maintenance is budgeted total maintenance hours.The base used to allocate Enrollment Services is number of credit hours for a department.The Facility and Technology Maintenance budget is $500 000,while the Enrollment Services budget is $1 200 000.The following chart summarises budgeted amounts and allocation-base amounts used by each department:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Services Provided (Annually) }$
$\begin{array}{|c|c|c|c|c|c|}
\hline& \text { Budget } & \text { Engineering } & \begin{array}{c}
\text { Computer } \
\text { Sciences }
\end{array} & \begin{array}{c}
\text { F\&T } \
\text { Maintenance }
\end{array} & \begin{array}{c}
\text { Enrollment } \
\text { Services }
\end{array} \ 
\hline \begin{array}{l}
\text { Engineering } \
\end{array} & \$ 3500000 & & & & \
\hline \begin{array}{l}
\text { Computer } \
\text { Sciences }
\end{array} & \$ 1400000 & & & & \
\hline \begin{array}{c}
F \& T \
\text { Maintenance } \
\text { (in hours) } \
\end{array} & \$ 500000 & 2000 & 1000 & \text { Zero } & 5000 \
\hline \begin{array}{l}
\text { Enrollment } \
\text { Services }
\end{array} & \$ 1200000 & 24000 & 36000 & 2000 & \text { Zero } \
\hline
\end{array}$  
Required:
a.Set up algebraic equations in linear equation form for each activity.
b.Determine total costs for each department by solving the equations from part (a)using the reciprocal method.
(Engineering = Eng;Computer Sciences = CS;Facility and Technical Maintenance = FTM;Enrollment Services = ES)
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.Eng = $1 400 000 + 2/8 (FTM)+ 24/62 (E

Question 14

Answer the following questions using the information below:
Mark,owner of Waugh Fiberglass Fabricators is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:
 $$\begin{array}{l}
\text { Buigeted manuficturing overhead costs: }\
\begin{array} { l l l } 
\text { Flant Maintenance } & \text { PM (Support Dept) } & \$ 350000 \
\text { Data Frocessing } & \text { DP (Support Dept) } & \$ 75000 \
\text { Machining } & \text { M (Operating Dept) } & \$ 225000 \
\text { Capping } & \text { C (Operating Dept) } & \$ 125000
\end{array}
\end{array}$$ Services furnished:
By Plant Maintenance (budgeted labour-hours):
 $\begin{array} { l l } \text { to Data Processing } & 3500 \ \text { to Machining } & 5000 \ \text { to Capping } & 8200 \end{array}$

By Data Frocessing (bud geted computer time):

$\begin{array}{ll}
\text { to Flant Maintenance } & 600 \
\text { to Machining } & 3500 \
\text { to Capping } & 600
\end{array}$
-What is the complete reciprocated cost of the Data Processing Department?

Accepted Answer

A) $122 971 
B) $90 000 
C) $118 750 
D) $152 432 
A) $122 971 
B) $90 000 
C) $118 750 
D) $152 432

Question 15

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
 Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.
-If a single-rate cost-allocation method is used,what amount of CMA costs will be allocated to the Large Plane Department?

Accepted Answer

A) $822 500 
B) $763 750 
C) $1 057 500 
D) $1 031 250 
A) $822 500 
B) $763 750 
C) $1 057 500 
D) $1 031 250

Question 16

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 incremental method for revenue allocation,what amount of revenue will be allocated to Reading Fun in the first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product,followed by Math Fun,and then Science.

Accepted Answer

A) $40 
B) $38 
C) $44 
D) $55 
A) $40 
B) $38 
C) $44 
D) $55

Question 17

Answer the following questions using the information below:
The Outback Aerial Medicorp has a central materials area (CMA).The CMA has only two users,the Large Plane Department and the Small Plane Department.The following data apply to the coming budget year:
 Budgeted costs of operating the CMA for 10000 to 20000 technician hours per year:
Fixed costs per year $\$ 600000$
Variable costs $\$ 100$ per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 9000 technician hours
Small Plane Department 7000 technician hours Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 7500 technician hours and by the Small Plane Department was 6500 technician hours.
-If a single-rate cost-allocation method is used,what is the allocation rate per hour used?

Accepted Answer

A) $100.00 
B) $137.50 
C) $80.00 
D) $146.67 
A) $100.00 
B) $137.50 
C) $80.00 
D) $146.67

Question 18

Answer the following questions using the information below:
Tamworth Country & Western Store has two service departments,Warehouse and Data centre.Warehouse Department costs of $200 000 are allocated on the basis of budgeted warehouse-hours.Data centre Department costs of $90 000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125 000 and $150 000,respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
  
-Using the step-down method,what amount of Data centre Department cost will be allocated to the Warehouse Department if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up. )

Accepted Answer

A) $90 000 
B) $7500 
C) $25 000 
D) $0 
A) $90 000 
B) $7500 
C) $25 000 
D) $0

Question 19

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 Personnel Department costs will be allocated to Department B?

Accepted Answer

A) $24 000 
B) $10 000 
C) $16 000 
D) $30 000 
A) $24 000 
B) $10 000 
C) $16 000 
D) $30 000

Question 20

To give more emphasis to the product that most likely drives the sales of the bundled product,the revenue allocation should be weighted using:

Accepted Answer

A) physical units. 
B) unit costs. 
C) stand-alone product revenues. 
D) selling prices. 
A) physical units. 
B) unit costs. 
C) stand-alone product revenues. 
D) selling prices.

Contract disputes often arise with respect to:

A way to implement the __________ method is to formulate and solve linear equations.

If costs are used as a basis for pricing,then charging user divisions for unused capacity could result in:

The choice between actual usage and budgeted usage for allocating fixed costs can affect a manager's decisions.

The advantage of using practical capacity to allocate costs is that it focuses management's attention on managing unused capacity

The only methods available when allocating the revenues across a bundled product offering are: 1)the stand-alone revenue-method;and 2)the incremental revenue-allocation method.

What is the name of the method that allocates costs in each cost pool using the same rate per unit?

Approaches used to rank products for revenue allocation might include:

The direct allocation method highlights recognition of services rendered by support departments to other support departments.

To give more emphasis to the product that most likely drives the sales of the bundled product,the revenue allocation should be weighted using:

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

Contract disputes often arise with respect to:

A way to implement the __________ method is to formulate and solve linear equations.

If costs are used as a basis for pricing,then charging user divisions for unused capacity could result in:

The choice between actual usage and budgeted usage for allocating fixed costs can affect a manager's decisions.

The advantage of using practical capacity to allocate costs is that it focuses management's attention on managing unused capacity

The only methods available when allocating the revenues across a bundled product offering are: 1)the stand-alone revenue-method;and 2)the incremental revenue-allocation method.

What is the name of the method that allocates costs in each cost pool using the same rate per unit?

Approaches used to rank products for revenue allocation might include:

The direct allocation method highlights recognition of services rendered by support departments to other support departments.

To give more emphasis to the product that most likely drives the sales of the bundled product,the revenue allocation should be weighted using:

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