Question 1

Operating departments:

Accepted Answer

A)  Manufacture goods or deliver services for external customers
B)  Provide services for all other departments within an organization
C)  Provide marketing services for all other departments
D)  Provide research and development for other departments A

Question 2

(CMA)The printing department supplies copy and printing support for both Departments A and B and has prepared its total budget using the following information for next year: Fixed costs $100,000
Available capacity 4,000,000 pages
Budgeted usage:
Department A 1,200,000 pages
Department B 2,400,000 pages
Variable cost $0.03 per page
Assume that the single rate method of cost allocation is used and the allocation base is budgeted usage. How much photocopying cost will be allocated to Department B using budgeted costs and usage?

Accepted Answer

A)  $72,000
B)  $122,000
C)  $132,000
D)  $138,667 D

Question 3

Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected: Support Departments Operating Departments
Engineering Administration Assembly Finishing
Direct costs $25,000 $15,000 $200,000 $350,000
Number of employees 15 10 300 450
Engineering supervisor's time 30% 15% 35% 20%
If the direct method is used, the fraction of engineering costs allocated to the finishing department will be:

Accepted Answer

A)  20/55
B)  20/100
C)  20/70
D)  20/85 A

Question 4

When preparing financial statements under generally accepted accounting principles, support department costs are generally classified as:

Accepted Answer

A)  Product costs
B)  Period costs
C)  Nonoperating costs
D)  Variable costs

Question 5

Managers often allocate support department costs as a means of motivating employees.

Accepted Answer

A) True 
 B)False

Question 6

The generalized process for allocating support department costs comprises six steps, listed below in random order. In the space provided, indicate the order in which the steps should be performed (1 through 6).
____ Assign costs to cost pools.
____ Choose and apply a method for allocating support department costs to operating departments.
____ Clarify the purpose of the allocation.
____ For each support department cost pool; choose an allocation base.
____ Identify support and operating department cost pools.
____ If relevant, allocate support costs from the operating departments to units of goods or services.

Accepted Answer

The answer of The generalized process for allocating support department...

Question 7

The accountants for Brock, 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: Percent of Services Used By
Support Departments Operating Departments
Maint- Admin-
Enance istration Op1 Op2 Op3
Services Supplied By:
Maintenance -- 25% 50% 12.5% 12.5%
(based on square metres)
Administration 20% -- 40% 20% 20%
(based on number of employees)
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 8

Pardee, Inc. allocates engineering costs on the basis of the supervisor's time and administration costs on the basis of the number of employees. The company's accountant determined that engineering provides more services to administration than administration provides to engineering. The following data have been collected: Support Departments Operating Departments
Engineering Administration Assembly Finishing
Direct costs $25,000 $15,000 $200,000 $350,000
Number of employees 15 10 300 450
Engineering supervisor's time 30% 15% 35% 20%
If the reciprocal method is used, what is the amount of engineering cost that will be allocated to all of the other departments?

Accepted Answer

A)  $21,456
B)  $24,330
C)  $26,432
D)  $25,331

Question 9

List two factors that should be considered when choosing allocation bases.

Accepted Answer

The answer of List two factors that should be considered...

Question 10

The accountants at King Industries want to determine the amount of support department costs that should be allocated to its operating departments. Actual support costs and allocation base information for the two support departments is shown below. The costs of support department S1 are allocated based on the number of service calls made, and the costs of support department S2 are allocated based on square metres.
Support Departments Operating Departments
S1 S2 O1 O2
Direct support costs $73,000 $35,000 ---- ----
Allocation bases:
Service calls 3 5 9 6
Square metres 5,000 2,000 25,000 20,000
Using the reciprocal method:
a)Determine the equations for allocating S1 and S2 costs
b)Determine the amount of cost allocated from S2 to S1
c)Determine the amount of cost allocated from S1 to O2
d)Determine the total support department costs allocated to the operating departments

Accepted Answer

The answer of The accountants at King Industries want to...

Question 11

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: Support Operating
Quality Maint-
Control enance Machining Assembly Total
Budgeted overhead costs
Before allocation $350,000 $200,000 $400,000 $300,000 $1,250,000
Budgeted machine hours 50,000 50,000
Budgeted direct labour hours 25,000 25,000
Budgeted hours of service:
Quality control 7,000 21,000 7,000 35,000
Maintenance 10,000 18,000 12,000 40,000
(CMA)If Ithaca Manufacturing uses the direct method of allocating support department costs, the total support costs allocated to the Assembly department would be:

Accepted Answer

A)  $80,000
B)  $87,500
C)  $120,000
D)  $167,500

Question 12

Following are allocation bases that are often used to allocate corporate headquarters costs to segments, divisions, or departments:
I. Revenues
II. Number of employees
III. Direct costs

Accepted Answer

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

Question 13

Answer the following questions:
a)What are the three methods of allocating support department costs?
b)Which of these methods recognizes interactions between departments? Explain.
c)Which of these methods has the potential to be most accurate? Why?
d)Assume you are working for an organization and are asked to allocate support department costs. Describe how you would choose the best method.
e)Suppose a company uses the method you identified in part (c)to allocate support costs. Do the support cost allocations represent the incremental cost of providing support services? Why or why not?

Accepted Answer

The answer of Answer the following questions:
a)What are the three...

Question 14

Quinlan, Inc. has two support departments (Maintenance and Personnel)and two operating departments (Tables and Chairs). The Maintenance department provides more services to the Personnel department than the Personnel department provides to Maintenance. Once the support department costs have been allocated to the operating departments, each operating department allocates its total costs to units produced. Support Departments Operating Departments
Maintenance Personnel Tables Chairs
Direct costs $27,000 $24,000 $44,000 $21,000
Square metres 6,000 10,000 20,000 60,000
Number of employees 20 40 70 80
Units produced ---- ---- 4,000 2,000
Assume the step-down method is used. The amount of cost allocated from Personnel to Maintenance is:

Accepted Answer

A)  $1,500
B)  $1,687.50
C)  $9,000
D)  $0

Question 15

Breakfast Bars has two support departments, Information Systems and Personnel. The Information Systems Department costs of $120,000 are allocated on the basis of hours used. The Personnel Department costs of $30,000 are allocated based on the number of employees. Costs of the two operating departments are $60,000 for Fruit Bars and $90,000 for Nut Bars. Data on information systems hours used and number of employees are as follows:
Information
Allocation Bases: Systems Personnel Fruit Nut
Information systems hours used 600 600 720 480
Number of employees 10 20 40 120
a)What is the cost of the Information Systems Department allocated to Fruit using the direct method?
b)Using the step-down method, what is the cost of the Personnel Department allocated to Fruit if the support department having the highest cost is allocated first?
c)Write the equations needed to allocate the costs of each support department using the reciprocal method.
d)Now solve for the total cost to be allocated under the reciprocal method for the Information Systems Department.
e)Breakfast Bars uses the allocation system to charge for services provided by the two support departments. Assume that Breakfast Bars uses the reciprocal method. What is the hourly charge for Information Systems' services?
f)Identify and discuss one problem with using a single rate allocation method to develop charges for the use of services.

Accepted Answer

The answer of Breakfast Bars has two support departments, Information...

Question 16

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 17

If product costs plus allocated support costs are used to set prices:
I. Prices increase as the volume of production decreases
II. Price increases cause further decreases in quantity demanded, causing production to decrease
III. The company may eventually go out of business

Accepted Answer

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

Question 18

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: Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs $50,000 $45,000 $275,000 $300,000
Number of employees 15 10 150 250
Square metres 1,500 2,000 3,500 4,000
If the step-down method is used and maintenance is allocated first, cafeteria costs allocated to packaging will be:

Accepted Answer

A)  $34,704
B)  $55,757
C)  $28,125
D)  $54,792

Question 19

Which of the following is least likely to be a reason for allocating support department costs?

Accepted Answer

A)  For internal reporting purposes
B)  To motivate managers
C)  To assist in strategic or operating decisions
D)  For financial statements prepared according to GAAP

Question 20

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

Exam 8: Measuring and Assigning Support Department Costs

Operating departments:

When preparing financial statements under generally accepted accounting principles, support department costs are generally classified as:

Managers often allocate support department costs as a means of motivating employees.

List two factors that should be considered when choosing allocation bases.

Following are allocation bases that are often used to allocate corporate headquarters costs to segments, divisions, or departments: I. Revenues II. Number of employees III. Direct costs

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

If product costs plus allocated support costs are used to set prices: I. Prices increase as the volume of production decreases II. Price increases cause further decreases in quantity demanded, causing production to decrease III. The company may eventually go out of business

Which of the following is least likely to be a reason for allocating support department costs?

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