Exam 8: Measuring and Assigning Support Department Costs

Allocation bases used in allocating support department costs:

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:

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

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:

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

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

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:

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

Under the direct method:

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

The reciprocal allocation method reflects:

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

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

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

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

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

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

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

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

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: