Deck 16: Refining Systems: Support Activity

Question 1

When a support department's activities are not fully consumed by other departments (that is, the support department self-consumes some costs):

A)We ignore such self-consumption.
B)Not allocating the self-consumption negatively affects the accuracy of allocations.
C)We must allocate the self-consumption costs to line activities.
D)A and B only.
E)None of the above.

Answer 1

A

Question 2

The cost driver used to allocate costs of support activities should bear an economic relation to the revenue generated.

Answer 2

False

Question 3

A line activity:

A)Generally has its costs allocated to support activities.
B)Directly relates to producing services or products.
C)Must be allocated costs from all support activities, whether or not the line activity consumed costs of the support activity.
D)Must be allocated costs from all support activities for which it consumed costs.
E)None of the above is a correct statement relating to a line activity.

Answer 3

B

Question 4

In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools.

Question 5

The purchasing department is an example of a support activity for a manufacturing company.

Question 6

Cost allocation rates serve as the explicit "price" for the services line managers obtain from other line activities.

Question 7

Under the direct method of allocating support activity costs, any consumption by other support departments are allocated to both support and line activities.

Question 8

A support activity:

A)Is needed to run the business.
B)Is directly related to making or selling a product or service.
C)Must have all its costs allocated to a line activity.
D)Must have all its costs allocated to a line activity or another support activity.
E)None of the above is a correct statement relating to a support activity.

Question 9

The step-down method of allocating support activity costs is also referred to as the rank-ordering method.

Question 10

It may be more appropriate for firms to employ long-term expected demand to allocate fixed capacity costs, and actual demand to allocate short-term variable costs.

Question 11

The direct and step-down methods of allocating support activity costs differ from the reciprocal method in that the reciprocal method uses a dual-rate allocation.

Question 12

The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion.

Question 13

Which of the following is not a method used to allocate support activity costs?

A)Direct method.
B)Reciprocal method.
C)Step-down method.
D)Self-consumption method.
E)All of the above are methods used to allocate support activity costs.

Question 14

A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion.

Question 15

Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex.

Question 16

One answer to the problem of using a single cost driver to allocate support activity costs is to use a dual-rate allocation.

Question 17

A line activity relates indirectly to producing services or products.

Question 18

All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs.

Question 19

In a consulting company specializing in designing multi-story office complexes, which of the following activities would not be classified as support activity?

A)Shipping.
B)Purchasing.
C)Structural engineering.
D)Human resources.
E)All of the above would be support departments.

Question 20

The reciprocal method of allocating support activity costs is conceptually the most appealing method because it takes into account all of the reciprocity in consumption.

Question 21

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\\hline&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\\hline\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \\\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \\\text { Number of Employees } & 10 & 20 & 100 & 150 \\\text { Direct Labor Hours } & & & 2,000 & 4,000\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the direct method of allocating support activities to line activities, what fraction of Maintenance will be allocated to Activity A?

A)1/4
B)1/4.7
C)1.7/4.7
D)3/7
E)None of the above.

Question 22

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\\hline&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\\hline\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \\\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \\\text { Number of Employees } & 10 & 20 & 100 & 150 \\\text { Direct Labor Hours } & & & 2,000 & 4,000\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of Human Resources costs will be allocated to Activity A?

A)$8,000
B)$9,454
C)$20,000
D)$4,545
E)None of the above.

Question 23

The step-down method of allocation improves the direct method by:

A)Considering the reciprocity in consumption partially.
B)Simplifying the allocation approach.
C)Allocating more of the total cost of the service activity.
D)Using a statistical approach to allocation.
E)None of the above.

Question 24

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\\hline&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\\hline\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \\\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \\\text { Number of Employees } & 10 & 20 & 100 & 150 \\\text { Direct Labor Hours } & & & 2,000 & 4,000\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the direct method of allocating support activities to line activities, what is the predetermined overhead rate for Activity B?

A)$50
B)$60
C)$60.50
D)$10
E)None of the above.

Question 25

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\\hline&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\\hline\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \\\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \\\text { Number of Employees } & 10 & 20 & 100 & 150 \\\text { Direct Labor Hours } & & & 2,000 & 4,000\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of total support activity costs will be allocated to Line Activities?

A)$60,000
B)$20,000
C)$40,000
D)$48,000
E)None of the above.

Question 26

Assume Porter's Consulting uses the number of purchase orders as the cost driver for allocating purchasing costs of $285,000.If Porter issues 1,000 purchase orders, including 300 used by line activity one, 400 used by line activity two, 50 for supplies used by purchasing itself, and 250 used by administration, how much of the cost will be allocated to line activity two using the direct method of allocation?

A)$199,500
B)$114,000
C)$162,857
D)$195,000
E)None of the above.

Question 27

Assume Potter's Manufacturing has a Janitorial Department that supports the Maintenance Department and two line activity departments, Department A and Department B.Janitorial and Maintenance are allocated to other departments on the basis of square footage of space used.The amount of space used by each department is listed below:
$$\begin{array} { l c } \text { Department } & \text { Square Footage Used } \\\text { Janitorial } & 600 \\\text { Maintenance } & 900 \\\text { Department A } & 4,500 \\\text { Department B } & 9,000\end{array}$$
The expected cost for the Janitorial Department is expected to be $9,000.Using the step-down method, what is the amount of janitorial costs will be allocated to Maintenance?

A)$0
B)$540
C)$562.50
D)$5,400
E)None of the above.

Question 28

Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\\hline&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\\hline\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \\\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \\\text { Number of Employees } & 10 & 20 & 100 & 150 \\\text { Direct Labor Hours } & & & 2,000 & 4,000\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what fraction of Human Resources costs will be allocated to Activity B?

A)5/6
B)1/4
C)3/5
D)1/3
E)None of the above.