Question 1

Use the following information for the next 2 questions.
Cervantes Industries provides an in-house cafeteria for production and administrative employees. This service costs $25,000 per month, plus $3 per meal served. The company has 800 production employees and 400 administrative employees. During the past month 5,500 meals were served to production employees and 2,000 to administrative.
-The amount of cost allocated to the administrative department using actual meals served as the basis is

Accepted Answer

A)   $16,675
B)   $12,667
C)   $14,325
D)   $18,500 B

Question 2

From the organization's perspective, relevant information when deciding whether to outsource a support service is most likely to include the

Accepted Answer

A)   Incremental cash flows for insourcing versus outsourcing
B)   Total allocated cost of the support service
C)   Number of other departments that use the support service
D)   Total cost of the support department A

Question 3

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
-Which of the following is a disadvantage for using budgeted costs instead of actual costs for support department cost allocation?

Accepted Answer

A)   Managers know their exact costs in advance and have no incentive to minimize use of services
B)   Budgeted costs do not reflect current usage, and so managers may overuse support services
C)   Allocated support department costs are not under the manager's control
D)   Support departments might be cut back because services are likely to be underused A

Question 4

"Perceived fairness" is sometimes used as a criterion for allocating support department costs to operating departments.

Accepted Answer

A) True 
 B)False

Question 5

Use the following information for the next 4 questions.
Trucker Industries provides the following information about departmental consumption of allocation bases for its 3 support and 2 operating departments: 
-For the step-down method, what proportion of Maintenance costs will be allocated to the Assembly Department if the allocation order is Personnel, Cafeteria, and Maintenance?

Accepted Answer

A)   20%
B)   28.6%
C)   42.9%
D)   30%

Question 6

The step-down method allocates support department costs in a cascading manner.

Accepted Answer

A) True 
 B)False

Question 7

Use the following information for the next 4 questions.
Arthur Henderson, LLC is a CPA firm that has a Printing Department that makes copies for its two operating departments, Audit and Tax. The Printing Department's budget for 2005 showed budgeted fixed costs of $40,000 plus variable costs of 2 cents per copy. At the beginning of 2005, the Audit Department budgeted its usage at 80,000 copies, and the Tax Department budgeted its usage at 50,000 copies. However, actual usage was 70,000 copies and 60,000 copies made by the Audit and Tax Departments, respectively.
-Under the dual-rate method, what amount of cost is allocated to the Tax Department if fixed costs are allocated based on budgeted usage and variable costs are allocated based on budgeted usage?

Accepted Answer

A)   $17,667
B)   $16,385
C)   $19,661
D)   None of the above

Question 8

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given: 
-If the direct method were used, how much total cost would be allocated to operating department A?

Accepted Answer

A)   $60,500
B)   $55,804
C)   $58,500
D)   $74,196

Question 9

A properly designed accounting system insures that costs are assigned with complete accuracy to support and operating department cost pools.

Accepted Answer

A) True 
 B)False

Question 10

The calculations for the reciprocal method are more complex than for other support department cost allocation methods.

Accepted Answer

A) True 
 B)False

Question 11

Use the following information for the next 5 questions.
The managers at Ithaca Manufacturing are discussing ways to allocate the cost of support departments such as Quality Control and Maintenance to the operating departments. To aid them in this discussion, the controller has provided the following information. 
-(CMA) Using the direct method, the total amount of overhead (production and support) allocated to the machining department for each machine hour at Ithica Manufacturing would be

Accepted Answer

A)   $2.40
B)   $5.25
C)   $8.00
D)   $15.65

Question 12

Which departments in an organization provide services internal to the organization?

Accepted Answer

A)   Non-value-added departments
B)   Value-added departments
C)   Support departments
D)   Operating departments

Question 13

Use the following information for the next 3 questions.
The personnel department provides service to operating departments A and B. Personnel's budget is based on 250 employees (100 in department A and 150 in department B). The budget calls for $40,000 in fixed costs, plus $140 per employee. During a recent month the personnel department incurred $41,000 in fixed costs and $42,200 in variable costs. The two operating departments, A and B, had 120 and 140 employees, respectively.
-How much would be charged to department B if budgeted costs were allocated based on number of employees?

Accepted Answer

A)   $45,000
B)   $44,800
C)   $43,600
D)   $40,385

Question 14

Managers can improve the quality of information when allocating support department costs by I. Using single-rate allocation
II. Using dual-rate allocation
III. Choosing cost drivers for allocation bases

Accepted Answer

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

Question 15

When managers use dual-rate allocation, they separate which kinds of costs into different pools?

Accepted Answer

A)   Support and operating
B)   Fixed and variable
C)   Product and period
D)   Operating and nonoperating

Question 16

The step-down method does not recognize services provided between support departments.

Accepted Answer

A) True 
 B)False

Question 17

Use the following information for the next 5 questions.
Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given: 
-If the direct method were used, how much computer cost would be allocated to operating department B?

Accepted Answer

A)   $11,250
B)   $25,667
C)   $26,471
D)   $41,250

Question 18

(CPA) Parat College allocates support department costs to its individual schools using the step-down method. Information for May 2003 follows:  What is the amount of May 2003 support department costs allocated to the School of Education?

Accepted Answer

A)   $40,500
B)   $42,120
C)   $46,100
D)   $49,125

Question 19

The allocation method that can manipulate the costs allocated by changing the order of the support department cost allocation is the

Accepted Answer

A)   Direct method
B)   Step-down method
C)   Reciprocal method d Dual-rate method

Question 20

Use the following information for the next 3 questions.
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 feet 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 foot
B)   $0.61 per square foot
C)   $0.70 per square foot
D)   None of the above

Exam 8: Measuring and Assigning Support Department Costs

From the organization's perspective, relevant information when deciding whether to outsource a support service is most likely to include the

"Perceived fairness" is sometimes used as a criterion for allocating support department costs to operating departments.

The step-down method allocates support department costs in a cascading manner.

Use the following information for the next 5 questions. Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B) . The following data are given: -If the direct method were used, how much total cost would be allocated to operating department A?

A properly designed accounting system insures that costs are assigned with complete accuracy to support and operating department cost pools.

The calculations for the reciprocal method are more complex than for other support department cost allocation methods.

Which departments in an organization provide services internal to the organization?

Managers can improve the quality of information when allocating support department costs by I. Using single-rate allocation II. Using dual-rate allocation III. Choosing cost drivers for allocation bases

When managers use dual-rate allocation, they separate which kinds of costs into different pools?

The step-down method does not recognize services provided between support departments.

Use the following information for the next 5 questions. Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B) . The following data are given: -If the direct method were used, how much computer cost would be allocated to operating department B?

(CPA) Parat College allocates support department costs to its individual schools using the step-down method. Information for May 2003 follows: What is the amount of May 2003 support department costs allocated to the School of Education?

The allocation method that can manipulate the costs allocated by changing the order of the support department cost allocation is the