Question 1

Allocation bases used in allocating support department costs:

Accepted Answer

A)   Can be any kind of measure
B)   Should be related to the services provided by the support department
C)   Are usually based only on the direct costs of the departments
D)   Are not cost drivers B

Question 2

PIR Corporation has 2 support departments and 2 operating departments. Number of employees is used as an allocation base for personnel support costs, and square metres are used for janitorial support costs. A breakdown of their costs, along with other operating information, is shown below for a recent accounting period:  If PIR uses dual-rate allocation and the direct method, the variable cost allocation rate for janitorial services will be:

Accepted Answer

A)   $0.50 per square metre
B)   $0.61 per square metre
C)   $0.70 per square metre
D)   None of the above A

Question 3

Allocating support department costs has some similarities to activity-based costing, for example costs are traced and allocated to cost pools.

Accepted Answer

A) True 
 B)False  True

Question 4

The accountants for Elliot, Inc. are preparing the operating departments overhead budgets. The Maintenance department direct costs are $12,000, and the Administration department direct costs are $54,000. The following data have been collected about use of services:  Assume the reciprocal method. The equation to express the full cost of the Maintenance department is:

Accepted Answer

A)   Maintenance = $12,000 + (0.50 × Administration) 
B)   Maintenance = $12,000 + (0.20 × $54,000) 
C)   Maintenance = $12,000 + (0.20 × Administration) 
D)   Maintenance = $12,000 + (0.25 × $54,000)

Question 5

A simple method used to allocate common costs is the:
I. Stand-alone cost allocation method
II. Incremental cost allocation method
III. Reciprocal method

Accepted Answer

A)   I only
B)   III only
C)   I, II, and III
D)   I and II only

Question 6

To decide the type and number of cost pools to use for support cost allocation, managers should consider the:

Accepted Answer

A)   Reasons for allocating support department costs
B)   Ability of operating departments to bear the costs
C)   Method they plan to use for the allocation
D)   Allocation base

Question 7

PIR Corporation has 2 support departments and 2 operating departments. Number of employees is used as an allocation base for personnel support costs, and square metres are used for janitorial support costs. A breakdown of their costs, along with other operating information, is shown below for a recent accounting period:  If PIR uses single-rate allocation and the direct method, the allocation rate for personnel will be:

Accepted Answer

A)   $280 per employee
B)   $215 per employee
C)   $187 per employee
D)   None of the above

Question 8

Which of the following types of organizations can have both operating and support departments?
I. Manufacturing
II. Service
III. Retail
IV. Governmental

Accepted Answer

A)   I and II only
B)   II and III only
C)   I and IV only
D)   I, II, III, and IV

Question 9

Under the direct method:

Accepted Answer

A)   A support department's costs are allocated only to final operating department users
B)   A support department's costs are allocated only to other support departments
C)   The costs of the support departments are allocated sequentially
D)   The costs of the support departments are allocated in order of their magnitude

Question 10

The terms "direct," "step-down," and "reciprocal" are associated with which part of allocating support department costs?

Accepted Answer

A)   Clarifying the purpose of the allocation
B)   Choosing and applying a method
C)   Allocating costs to units of product or service
D)   Choosing an allocation base

Question 11

The reciprocal allocation method reflects:

Accepted Answer

A)   All of the support department interactions
B)   None of the support department interactions
C)   Part of the support department interactions
D)   A relatively simple allocation method

Question 12

Which of the following is a drawback of dual-rate allocation?
I. It introduces uncertainty about cost classification
II. It costs more to develop and maintain than single-rate allocation
III. It may cause managers to believe that all support costs are variable

Accepted Answer

A)   I and III only
B)   I and II only
C)   II and III only
D)   I, II, and III

Question 13

Which of the following contract types is most susceptible to inappropriate cost allocations?

Accepted Answer

A)   Cost-based
B)   Fixed-price
C)   Based on activities undertaken
D)   Dual-rate

Question 14

If support department allocations are used to motivate managers to be more efficient:
I. The managers must believe the allocation system is fair
II. The managers should choose the allocation bases
III. It is not important that managers understand how the allocations are made

Accepted Answer

A)   I only
B)   I and III only
C)   II and III only
D)   II only

Question 15

When many different types of support department costs are assigned to the same cost pool:

Accepted Answer

A)   Managers cannot allocate them
B)   Cost allocation becomes more arbitrary
C)   Cost allocation better reflects the flow of resources
D)   Managers cannot use the reciprocal method for allocation

Question 16

When allocating support department costs, managers must identify cost pools. The choice of cost pools is:

Accepted Answer

A)   Determined by generally accepted accounting principles
B)   Not influenced by the allocation base
C)   Influenced by the design of the accounting information system
D)   Not important, because all support department costs will eventually be allocated anyway

Question 17

Which pair below best matches a support department with an appropriate allocation base?

Accepted Answer

A)   Administration, square metres occupied
B)   Housekeeping, number of requisitions for supplies
C)   Employee training, number of employees
D)   Accounting, number of general ledger accounts

Question 18

In a discount department store, which of the following is most likely a support department?

Accepted Answer

A)   Housewares
B)   Furniture
C)   Purchasing
D)   Appliances

Question 19

The direct method allocates the cost of support departments only to operating departments.

Accepted Answer

A) True 
 B)False

Question 20

The accountant for Milton, Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected:  If the direct method is used, maintenance costs allocated to the cutting department will be:

Accepted Answer

A)   $15,909
B)   $23,333.33
C)   $20,520
D)   $43,750

Exam 8: Measuring and Assigning Support Department Costs