Question 1

Complete reciprocated costs:

Accepted Answer

A) include the support department's costs plus any interdepartmental cost-allocations. 
B) are used for step-down allocations. 
C) are less than the support department's own costs. 
D) are also referred to as budgeted costs. 
A) include the support department's costs plus any interdepartmental cost-allocations. 
B) are used for step-down allocations. 
C) are less than the support department's own costs. 
D) are also referred to as budgeted costs.

Question 2

Frenhs Forest Publishing Company has two service departments,S1 and S2,and two production departments,P1 and P2.
The data for May were as follows:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Services provided to: }$ 
$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Activity } & \text { Costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \
\hline \text { S1 } & \$ 90000 & & 10 \% & 40 \% & 50 \% \
\hline \text { S2 } & \$ 60000 & 20 \% & & 55 \% & 25 \% \
\hline & \text { Fixed Costs } & & & & \
\hline \text { P1 } & \$ 360000 & & & & \
\hline \text { P2 } & \$ 520000 & & & & \
\hline
\end{array}$  
Required:
a.Set up algebraic equations in linear form for each activity.
b.Determine total costs for each department by solving the equations from part (a)using the reciprocal method.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

a.S1 = $90 000 + 0.20 (S2)
S2 = $60 000

Question 3

The goal is to allocate common costs to each user in a reasonable way.

Accepted Answer

A) True 
 B)False

Question 4

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract.What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Disputes can be reduced by making the co

Question 5

Answer the following questions using the information below:
The Launceston Copy Corporation has a central copying facility.The copying facility has only two users,the Marketing Department and the Operations Department.The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 200 000 to 300 000 copies:
 Fixed costs per year $\quad \$ 40000$
Variable costs 3 cents (.03) per copy
Buageted long-nu usage in copies per year:
Marketing Department 75000 copies
Operations Department 210000 copies Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40 000 copies and by the Operations Department was 180 000 copies.
-If a single-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Marketing Department?

Accepted Answer

A) $12 776 
B) $8400 
C) $7200 
D) $3800 
A) $12 776 
B) $8400 
C) $7200 
D) $3800

Question 6

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 direct method,what amount of Data centre Department costs will be allocated to Department Music?

Accepted Answer

A) $30 000 
B) $40 000 
C) $90 000 
D) $41 667 
A) $30 000 
B) $40 000 
C) $90 000 
D) $41 667

Question 7

The reciprocal allocation method:

Accepted Answer

A) is the most widely used because of its simplicity. 
B) requires the ranking of support departments in the order that the allocation is to proceed. 
C) results in allocating more support costs to operating departments than actually incurred. 
D) is conceptually the most precise. 
A) is the most widely used because of its simplicity. 
B) requires the ranking of support departments in the order that the allocation is to proceed. 
C) results in allocating more support costs to operating departments than actually incurred. 
D) is conceptually the most precise.

Question 8

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 stand-alone product revenues as the weight for revenue allocation,what amount will be allocated to the refrigerator?

Accepted Answer

A) $625.00 
B) $673.75 
C) $825.00 
D) $687.50 
A) $625.00 
B) $673.75 
C) $825.00 
D) $687.50

Question 9

Contract disputes often arise with respect to cost allocation.

Accepted Answer

A) True 
 B)False

Question 10

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 dual-rate cost-allocation method is used,what amount of CMA costs will be budgeted for the Large Plane Department?

Accepted Answer

A) $1 237 500 
B) $1 880 000 
C) $1 600 000 
D) $822 500 
A) $1 237 500 
B) $1 880 000 
C) $1 600 000 
D) $822 500

Question 11

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 $ $\quad $ $\quad $$\text { Services Provided (Annually) }$ $\begin{array}{|c|c|c|c|c|c|}
\hline&\text { Budget } & \text { Engineering } & \begin{array}{c}
\text { Computer } \
\text { Sciences }
\end{array} & \begin{array}{c}
\text { F\&T } \
\text { Maintenance }
\end{array} & \begin{array}{c}
\text { Enrollment } \
\text { Services }
\end{array}\
\hline \begin{array}{c}
\text { F\& T } \
\text { Maintenance } \
\text { (in hours) }
\end{array} & \$ 500000 & 2000 & 5000 & \text { Zero } & 1000 \
\hline \begin{array}{c}
\text { Enrollment } \
\text { Services } \
\text { (incredit hrs) }
\end{array} & \$ 1200000 & 24000 & 36000 & 2000 & \text { Zero }\
\hline
\end{array}$

- 
Required:
Use the direct method to allocate support costs to each of the two principal operating departments,Engineering and Computer Sciences.Prepare a schedule showing the support costs allocated to each department.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

\[\begin{array} { | c | r | c | c | } 
\

Question 12

Under the incremental method,the first incremental user usually receives the highest allocation of the common costs.

Accepted Answer

A) True 
 B)False

Question 13

When may the revenue allocation be weighted using physical units?

Accepted Answer

A) Selling prices are unstable and unit costs are difficult to calculate. 
B) The individual products within the bundle have approximately the same value. 
C) Other methods cannot be used for various reasons. 
D) All of these answers are correct. 
A) Selling prices are unstable and unit costs are difficult to calculate. 
B) The individual products within the bundle have approximately the same value. 
C) Other methods cannot be used for various reasons. 
D) All of these answers are correct.

Question 14

The practical capacity method of allocating costs is:

Accepted Answer

A) based on the practical capacity supplied 
B) based on the using departments negotiating the charges they will accept 
C) based on actual capacity used 
D) based on the budgeted capacity demanded 
A) based on the practical capacity supplied 
B) based on the using departments negotiating the charges they will accept 
C) based on actual capacity used 
D) based on the budgeted capacity demanded

Question 15

The direct method allocates each support department's costs to operating departments and to support departments.

Accepted Answer

A) True 
 B)False

Question 16

Allocating fixed costs on the basis of ___________ long-term usage may tempt some managers to underestimate their planned usage.

Accepted Answer

A) actual 
B) average 
C) projected 
D) budgeted 
A) actual 
B) average 
C) projected 
D) budgeted

Question 17

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 direct method,what amount of Warehouse Department costs will be allocated to Department Books?

Accepted Answer

A) $90 000 
B) $120 000 
C) $70 000 
D) $87 500 
A) $90 000 
B) $120 000 
C) $70 000 
D) $87 500

Question 18

AAA offers towing services,auto routing,travel brochures,and other travel services for one annual fee.This is an example of:

Accepted Answer

A) revenue tracing. 
B) a bundled product. 
C) a joint product. 
D) revenue allocation. 
A) revenue tracing. 
B) a bundled product. 
C) a joint product. 
D) revenue allocation.

Question 19

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 dual-rate cost-allocation method is used,what amount of operating costs will be budgeted for the HalfLight Division?

Accepted Answer

A) $870 000 
B) $780 000 
C) $750 000 
D) $900 000 
A) $870 000 
B) $780 000 
C) $750 000 
D) $900 000

Question 20

The single-rate cost-allocation method provides better information for decision making than the dual-rate method.

Accepted Answer

A) True 
 B)False

Complete reciprocated costs:

The goal is to allocate common costs to each user in a reasonable way.

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract.What advice can you provide to reduce contract disputes over reimbursement amounts based on costs? _ _

The reciprocal allocation method:

Contract disputes often arise with respect to cost allocation.

Under the incremental method,the first incremental user usually receives the highest allocation of the common costs.

When may the revenue allocation be weighted using physical units?

The practical capacity method of allocating costs is:

The direct method allocates each support department's costs to operating departments and to support departments.

Allocating fixed costs on the basis of ___________ long-term usage may tempt some managers to underestimate their planned usage.

AAA offers towing services,auto routing,travel brochures,and other travel services for one annual fee.This is an example of:

The single-rate cost-allocation method provides better information for decision making than the dual-rate method.

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

Complete reciprocated costs:

The goal is to allocate common costs to each user in a reasonable way.

The reciprocal allocation method:

Contract disputes often arise with respect to cost allocation.

Under the incremental method,the first incremental user usually receives the highest allocation of the common costs.

When may the revenue allocation be weighted using physical units?

The practical capacity method of allocating costs is:

The direct method allocates each support department's costs to operating departments and to support departments.

Allocating fixed costs on the basis of ___________ long-term usage may tempt some managers to underestimate their planned usage.

AAA offers towing services,auto routing,travel brochures,and other travel services for one annual fee.This is an example of:

The single-rate cost-allocation method provides better information for decision making than the dual-rate method.

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