Exam 8: Measuring and Assigning Support Department Costs

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:

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: Using the reciprocal method, the allocation from the maintenance department to Op1 department is:

Cope, Inc. has the following costs and usage data for its support departments: If the step-down method is used, and the order of allocation is department B first, then A, and finally C, the amount of support department A costs allocated to operating department 2 will be:

All of the following are likely to be support departments in a CPA firm except:

When managers use dual-rate allocation, they frequently identify cost drivers for fixed cost pools to identify resource flows more accurately.

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. Assume the step-down method is used. The amount of cost allocated from Personnel to the Table department is:

The managers at Elliot 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: Budgeted hours of service: If Elliot Manufacturing decides not to allocate support costs to the operating departments, the overhead allocated to each direct labour hour in the Assembly Department would be:

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 perpage 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?

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

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

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: If the step-down method is used and engineering costs are allocated first, the fraction of engineering costs allocated to the assembly department will be:

Support departments provide services:

Which of the following is a disadvantage for using budgeted costs instead of actual costs for support department cost allocation?

Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given: If the step-down method is used and utilities allocated first, how much computer cost would be allocated to the utilities department?

Because the process of measuring and allocating support costs is uncertain and requires judgment:

The reciprocal method reflects only part of the interactions between support departments.

Cope, Inc. has the following costs and usage data for its support departments: If the step-down method is used and the order of allocation is based on the quantity of service each support department provides to other support departments, the total cost of support department C will be:

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

Single-rate allocations are unlikely to reflect actual resource usage.

Support department costs are generally allocated to inventory when preparing financial statements under generally accepted accounting principles.