Exam 8: Measuring and Assigning Support Department Costs

A support department provides internal services for both operating and other support departments.

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: If Elliot Manufacturing uses the reciprocal method of allocating support costs, the total amount of quality control costs (rounded to the nearest dollar) to be allocated to the other departments would be:

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

The direct allocation method reflects:

Parat College allocates support department costs to its individual schools using the step-down method. Information for May 2017 follows: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Support Departments }$ Cost incurred \ 99,000 \ 54,000 Maintenance ---- 10\% Power 20\% School of Education 30\% 20\% chool of Technology 50\% 70\% 100\% 100\% What is the amount of May 2017 support department costs allocated to the School of Education?

Following are reasons to allocate support department costs: I. To motivate managers to provide and use support services efficiently II. For external reporting such as cost reports for government contracts III. For economic planning and decision-making

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

Managers need to clarify their reasons for allocating support department costs before establishing cost pools.

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 are allocated first, how much total cost would be allocated to operating department B?

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

Which departments in an organization produce services for external clients?

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: (based on number of employees) Using the reciprocal method, the total costs allocated to the three operating departments from the support departments is:

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

The step-down method allocates one support department's cost at a time.

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?

Which of the following steps is not always part of allocating support department costs?

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 step-down method is used and maintenance is allocated first, the total cost allocated to the cutting department will be:

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 reciprocal method is used, the total amount that will be allocated for maintenance is:

WST Corporation uses actual amounts to calculate support department cost allocation rates. A disadvantage of this practice is:

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