Chapter 15 Allocation of Support-Department Costs, Common Costs, and Revenues

Chapter 15 Allocation of Support-Department Costs, Common Costs, and Revenues

Objective 15.1

1) The method that allocates costs in each cost pool using the same rate per unit is known as the:
A) incremental cost-allocation method
B) reciprocal cost-allocation method
C) single-rate cost allocation method
D) dual-rate cost-allocation method
Answer: C
Diff: 2
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

2) The dual-rate cost-allocation method classifies costs in each cost pool into a:
A) budgeted-cost pool and an actual-cost pool
B) variable-cost pool and a fixed-cost pool
C) used-capacity-cost pool and a practical-capacity-cost pool
D) direct-cost pool and a reciprocal-cost pool
Answer: B
Diff: 1
Terms: dual-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

3) The single-rate cost-allocation method may base the denominator choice on:
A) master-budget capacity utilization
B) normal capacity utilization
C) practical capacity
D) All of these answers are correct.
Answer: D
Diff: 2
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

4) When using the single-rate method, fixed cost allocation may be based on:
A) actual usage
B) budgeted usage
C) incremental cost allocation
D) Either A or B are correct.
Answer: D
Diff: 1
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

1
Copyright © 2012 Pearson Education, Inc.

,5) Benefits of the single-rate method include:
A) it is easier to calculate
B) fixed costs that are transformed into variable costs for user decision making
C) signals regarding how variable and fixed costs behave differently
D) information that leads to outsourcing decisions that benefit the organization as a whole
Answer: A
Diff: 3
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

6) Benefits of the dual-rate method include:
A) variable costs that are transformed into fixed costs for user decision making
B) the low cost of implementation
C) avoidance of expensive analysis for categorizing costs as either fixed or variable
D) information that leads to outsourcing decisions that benefit the organization as a whole
Answer: D
Diff: 3
Terms: dual-rate cost-allocation method
Objective: 1
AACSB: Reflective thinking

7) The advantage of using practical capacity to allocate costs:
A) is that it allows a downward demand 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) Either A or B are correct.
Answer: B
Diff: 3
Terms: support department
Objective: 1
AACSB: Reflective thinking




2
Copyright © 2012 Pearson Education, Inc.

,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
for 400,000 to 600,000 copies:
Fixed costs per year $60,000
Variable costs 3 cents (.03) per copy
Budgeted long-run usage in copies per year:
Marketing Department 120,000 copies
Operations Department 380,000 copies

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.

8) If a single-rate cost-allocation method is used, what amount of copying facility costs will be budgeted
for the Marketing Department?
A) $18,000
B) $3,600
C) $14,400
D) $16,800
Answer: A
Explanation: A) [(120,000/ (120,000 + 380,000)) × $60,000] + (120,000 × $0.03) =$18,000
Diff: 2
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Analytical skills

9) If a single-rate cost-allocation method is used, what amount of copying facility costs will be allocated
to the Marketing Department? Assume actual usage is used to allocate copying costs.
A) $16,800
B) $18,000
C) $12,000
D) $9,600
Answer: C
Explanation: C) [(120,000) / (120,000 + 380,000)) × $60,000] + (120,000 × $0.03) = $18,000
$18,000/120,000 copies = $0.15 per copy × 80,000 = $12,000
Diff: 3
Terms: single-rate cost-allocation method
Objective: 1
AACSB: Analytical skills




3
Copyright © 2012 Pearson Education, Inc.

, 10) If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted
for the Operations Department?
A) $57,000
B) $56,400
C) $60,490
D) $59,890
Answer: A
Explanation: A) [(380,000) / (120,000 + 380,000)) × $60,000] + (380,000 × $0.03) = $57,000
Diff: 2
Terms: dual-rate cost-allocation method
Objective: 1
AACSB: Analytical skills

11) If a dual-rate cost-allocation method is used, what amount of copying facility costs will be allocated
to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual
usage is used to allocate variable copying costs.
A) $60,490
B) $59,890
C) $57,000
D) $56,400
Answer: D
Explanation: D) [(380,000) / (120,000 + 380,000)) × $60,000] + (360,000 × $0.03) = 56,400
Diff: 3
Terms: dual-rate cost-allocation method
Objective: 1
AACSB: Analytical skills




4
Copyright © 2012 Pearson Education, Inc.