Question 1

The direct allocation method provides key information for outsourcing decisions regarding support services.

Accepted Answer

A) True 
 B)False

Question 2

Complete reciprocated costs is the support department's own costs plus any interdepartmental cost allocations.

Accepted Answer

A) True 
 B)False

Question 3

Answer the following questions using the information below:
The Charmatz 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
 $\begin{array}{lll}\text { for } 400,000 \text { to } 600,000 \text { copies: }\
\text { Fixed costs per year }&\$60,000\
\text { Variable costs }&3 \text { cents }(.03) \text { per copy }\
\text { Budgeted long-run usage in copies per year: }\
\text { Marketing Department } & 120,000 & \text { copies } \
\text { Operations Department } & 380,000 & \text { copies }
\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.
-If a dual-rate cost-allocation method is used,what amount of copying facility costs will be budgeted for the Operations Department?

Accepted Answer

A)  $57,000 
B)  $56,400 
C)  $60,490 
D)  $59,890

Question 4

Complete reciprocated costs ________.

Accepted Answer

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

Question 5

The dual-rate cost-allocation method provides better information for decision making than the single-rate method as it differentiates between fixed and variable costs and its allocation.

Accepted Answer

A) True 
 B)False

Question 6

Because the variable costs are directly and causally linked to usage,charging them as a function of the actual usage is appropriate.

Accepted Answer

A) True 
 B)False

Question 7

Marshall University offers only high-tech graduate-level programs.Marshall has two principal operating departments,Commerce and Social 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 $900,000.The following chart summarizes budgeted amounts and allocation-base amounts used by each department:
 $\text { Services Provided: (Annually) }$
$\begin{array}{|l|c|c|c|c|c|}
\hline & \text { Budget } & \text { commerce } & \begin{array}{c}
\text { Social } \
\text { Sciences }
\end{array} & \begin{array}{c}
\text { F\&T } \
\text { Maintenance }
\end{array} & \begin{array}{c}
\text { Enrollment } \
\text { Service }
\end{array} \
\hline \begin{array}{l}
\text { Mar } \
\text { (in hourtenance }
\end{array} & \$500,000 & 3,000 & 6,000 & \text { Zero } & 5,000 \
\hline\begin{array}{l}
\text { Enrollment } \
\text { Service } \
\text { in credit hrs) }
\end{array} & \$ 900,000 & 25,000 & 35,000 & 2,000 & \text { Zero } \
\hline
\end{array}$ Required:
Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept.Compute the total amount of support costs allocated to each of the two principal operating departments,Commerce and Social Sciences.

Accepted Answer

The answer of Marshall University offers only high-tech graduate-level programs.Marshall...

Question 8

The Maintenance Department has been servicing Gizmo Production for four years.Beginning next year,the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production.As a result,maintenance costs are expected to increase from $480,000 per year to $500,000 per year.The Scrap-Processing Department will use 25% of the maintenance efforts.
Required:
a.Using the stand-alone cost-allocation method,identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
b.Using the incremental cost-allocation method,identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
c.What is the difference between the two methods that would affect Scrap-Processing Department?

Accepted Answer

The answer of The Maintenance Department has been servicing Gizmo...

Question 9

In government contracting,there is a complex interplay of political considerations and accounting principles.

Accepted Answer

A) True 
 B)False

Question 10

Answer the following questions using the information below:
The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory 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 materials laboratory
for 100,000 to 200,000 technician hours per year:
 $\begin{array}{lll}
\text { Fixed costs per year }&\$8,000,000\
\text { Variable costs }&\$ 70 \text { per technician hour }\
\text { Budgeted long-run usage in hours per year: }\
\text { Large Plane Department } & 80,000  \text { technician hours } \
\text { Small Plane Department } & 70,000  \text { technician hours }
\end{array}$ Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.
-If a dual-rate cost-allocation method is used,what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Accepted Answer

A)  $9,133,333 
B)  $9,166,667 
C)  $9,466,667 
D)  $9,666,667

Question 11

Which of the following departments is a support department for a boat manufacturing company?

Accepted Answer

A)  production 
B)  molding 
C)  assembling 
D)  accounting

Question 12

Which of the following is an example of a revenue object?

Accepted Answer

A)  suppliers 
B)  products 
C)  labor 
D)  duration to complete a given task

Question 13

Special cost-allocation problems arise when ________.

Accepted Answer

A)  support department costs exceed budgetary estimates 
B)  practical capacity is used as the allocation base 
C)  support departments provide reciprocal services to each other and operating departments 
D)  the same cost-allocation base is used among various support departments

Question 14

If the incremental users are newly formed companies or subunits,the incremental method may decrease their chances for short-run survival by assigning them a high allocation of the common costs.

Accepted Answer

A) True 
 B)False

Question 15

The reciprocal method allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an operating department?

Accepted Answer

A)  machining 
B)  accounting 
C)  materials management 
D)  production control

Question 17

Answer the following questions using the information below:
Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:
 $\text { Budgeted manufacturing overhead costs: }$
$\begin{array}{llr}
\text { Maintenance } & \text { M (Support Dept) } & \$ 300,000 \
\text { Personnel } & \mathrm{P} \text { (Support Dept) } & \$ 160,000 \
\text { Weaving } & \text { W (Weaving Dept) } & \$ 650,000 \
\text { Colorizing } & \mathrm{C} \text { (Colorizing Dept) } & \$ 350,000
\end{array}$

$\begin{array}{ll}
\text { Services fumished: }\
\text { By Maintenance (bud geted labor-hours): }\
\text { to Personnel } & 1,000 \
\text { to Weaving } & 7,000 \
\text { to Colorizing } & 4,000\\text { By Personnel (Number of employees serviced): }\
\text { Plant Maintenance } & 10 \
\text { Weaving } & 30 \
\text { Colorizing } & 20
\end{array}$
-What is the complete reciprocated cost of the Personnel Department?

Accepted Answer

A)  $185,000 
B)  $187,606 
C)  $160,000 
D)  $210,000

Question 18

When budgeted cost-allocation rates are used,variations in actual usage by one division affect the costs allocated to other divisions.

Accepted Answer

A) True 
 B)False

Question 19

Answer the following questions using the information below:
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
 $$\begin{array} { | l | c | c | c | c | } 
\hline &  { \text { Support Departments } } &&{ \begin{array} { c } 
\text { Production } \
\text { Departments }
\end{array} } \
\hline & \begin{array} { c } 
\text { Warehouse } \
\text { Department }
\end{array} & \begin{array} { c } 
\text { Data Center } \
\text { Department }
\end{array} & \text { Music } & \text { Books } \
\hline \text { Budgeted costs } & \$ 350,000 & \$ 150,000 & \$ 125,000 & \$ 150,000 \
\hline \text { Budgeted warehouse-hours } & \text { NA } & 500 & 1,000 & 1,500 \
\hline \text { Number of computer hours } & 200 & \text { NA } & 800 & 1,000 \
\hline
\end{array}$$
-Using the direct method,what amount of Data Center Department costs will be allocated to Department Music?

Accepted Answer

A)  $150,000 
B)  $66,667 
C)  $83,333 
D)  $60,000

Question 20

The advantage of using practical capacity to allocate costs ________.

Accepted Answer

A)  is that it allows a downward supply spiral to develop 
B)  is that it focuses management's attention on managing unused capacity 
C)  is that budgets are much easier to develop 
D)  is that it results in departments bearing a lower percentage of fixed costs

Exam 15: Allocation of Support-Department Costs, common Costs, and Revenues

The direct allocation method provides key information for outsourcing decisions regarding support services.

Complete reciprocated costs is the support department's own costs plus any interdepartmental cost allocations.

Complete reciprocated costs ________.

The dual-rate cost-allocation method provides better information for decision making than the single-rate method as it differentiates between fixed and variable costs and its allocation.

Because the variable costs are directly and causally linked to usage,charging them as a function of the actual usage is appropriate.

In government contracting,there is a complex interplay of political considerations and accounting principles.

Which of the following departments is a support department for a boat manufacturing company?

Which of the following is an example of a revenue object?

Special cost-allocation problems arise when ________.

If the incremental users are newly formed companies or subunits,the incremental method may decrease their chances for short-run survival by assigning them a high allocation of the common costs.

The reciprocal method allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments.

Which of the following is an operating department?

When budgeted cost-allocation rates are used,variations in actual usage by one division affect the costs allocated to other divisions.

The advantage of using practical capacity to allocate costs ________.