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    Answers Homework # 17 Cost MGMT 6

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    Raman A
    This document provides examples and explanations for allocating costs between departments using different cost allocation methods, including dual-rate, direct, step-down, and reciprocal methods. It contains 10 multiple choice questions about allocating costs between service departments and production departments, with explanations for the correct answers. The questions cover topics such as encouraging use of a department, different cost allocation methods, and allocating costs when departments provide services to each other.

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    Answers Homework # 17 Cost MGMT 6

    Uploaded by

    Raman A
    112 views6 pages
    This document provides examples and explanations for allocating costs between departments using different cost allocation methods, including dual-rate, direct, step-down, and reciprocal methods. It contains 10 multiple choice questions about allocating costs between service departments and production departments, with explanations for the correct answers. The questions cover topics such as encouraging use of a department, different cost allocation methods, and allocating costs when departments provide services to each other.

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    Answers Homework # 17 Cost Mgmt 6 CMA

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    Answers Homework # 17 Cost Mgmt 6

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    This document provides examples and explanations for allocating costs between departments using different cost allocation methods, including dual-rate, direct, step-down, and reciprocal methods. It contains 10 multiple choice questions about allocating costs between service departments and production departments, with explanations for the correct answers. The questions cover topics such as encouraging use of a department, different cost allocation methods, and allocating costs when departments provide services to each other.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    112 views6 pages

    Answers Homework # 17 Cost MGMT 6

    Uploaded by

    Raman A
    This document provides examples and explanations for allocating costs between departments using different cost allocation methods, including dual-rate, direct, step-down, and reciprocal methods. It contains 10 multiple choice questions about allocating costs between service departments and production departments, with explanations for the correct answers. The questions cover topics such as encouraging use of a department, different cost allocation methods, and allocating costs when departments provide services to each other.

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    of 6

    IPFC Academy Pvt Ltd

    Homework #17: Part I: Sec D: Cost Management - 6


    ABC and Service Department Cost Allocation

    1. When allocating costs from one department to another, a dual-rate cost-allocation method
    may be used. The dual-rate cost-allocation method is most useful when

    a. two or more cost pools are to be allocated.


    b. two or more departments’ costs are to be allocated.
    c. two or more products are produced.
    d. costs are separated into variable-cost and fixed-cost subpools

    You have answered D which is Correct!

    Correct answer d. The dual-rate cost-allocation method classifies costs in each cost pool into two
    subcost pools, a variable-cost subpool and a fixed cost subpool, with each of these subpools having a
    different cost allocation base.

    2. The management of ROX Company wishes to encourage all other departments to use the
    legal department, as circumstances warrant. To accomplish this, legal department costs should
    be

    a. allocated to users on the basis of the actual cost of hours used.


    b. allocated to users on the basis of the budgeted cost of actual hours used.
    c. allocated to users on the basis of standard cost for the type of service provided.
    d. absorbed as a corporate expense.

    You have answered D which is Correct!


    Correct answer d. If the cost of legal services is allocated on the basis of usage, departments will be
    very careful about usage. To encourage usage, the cost should be absorbed as a corporate expense.

    3. Boston Furniture Company manufactures several steel products. It has three production
    departments, Fabricating, Assembly, and Finishing. The service departments include
    Maintenance, Material Handling, and Designing. Currently, the company does not allocate
    service department costs to the production departments. John Baker, who has recently joined
    the company as the new cost accountant, believes that service department rates should be
    developed and charged to the production departments for services requested. If the company
    adopts this new policy, the production department managers would be least likely to

    a. request an excessive amount of service.


    b. replace outdated and inefficient systems.
    c. refrain from using necessary services.
    d. be encouraged to control costs.

    You have answered B which is Wrong

    Correct answer a. Allocating service department costs to production departments is most likely to
    cause production managers to be more careful about the use of services and not request excessive
    service.

    4. Cotton Company has two service departments and three operating departments. In allocating
    service department costs to the operating departments, which of the following three methods
    (direct, step-down, reciprocal) will result in the same amount of service department costs being
    allocated to each operating department, regardless of the order in which the service department
    costs are allocated?

    a. Direct and reciprocal methods only.


    b. Step-down and reciprocal methods only.
    c. Direct and step-down methods only.
    d. Direct method only.
    You have answered A which is Correct!
    Correct answer a. Depending on the step-down sequence used, different allocation of support
    departments to operating departments will result. Therefore, the correct response is direct and
    reciprocal methods only.

    5. Wilcox Industrial has two support departments, the Information Systems Department and the
    Personnel Department, and two manufacturing departments, the Machining Department and the
    Assembly Department. The support departments service each other as well as the two
    production departments. Company studies have shown that the Personnel Department provides
    support to a greater number of departments than the Information Systems Department. Which
    one of the following departmental allocations is present in the reciprocal method of departmental
    allocation? The costs of the

    a. Assembly Department are allocated to the Information Systems Department and the
    Personnel Department.
    b. Information Systems Department are allocated to the Machining Department and the costs of
    the Machining Department are allocated to the Assembly Department.
    c. Personnel Department are allocated solely to the Information Systems Department.
    d. Information Systems Department are allocated to the Personnel Department, Machining
    Department, and Assembly Department.

    You have answered D which is Correct!

    Correct answer d. The reciprocal method of departmental allocation explicitly includes the mutual
    services provided among all support departments. Therefore, the Information Systems Department
    would be allocated all users including the Personnel Department.
    6. Wilcox Industrial has two support departments, the Information Systems Department and the
    Personnel Department, and two manufacturing departments, the Machining Department and the
    Assembly Department. The support departments service each other as well as the two
    production departments. Company studies have shown that the Personnel Department provides
    support to a greater number of departments than the Information Systems Department. If Wilcox
    uses the step-down method of departmental allocation, which one of the following cost
    allocations would not occur? Some of the costs of the

    a. Personnel Department would be allocated to the Information Systems Department.


    b. Information Systems Department would be allocated to the Personnel Department.
    c. Personnel Department would be allocated to the Assembly Department.
    d. Personnel Department would be allocated to the Assembly Department and the Machining
    Department.
    You have answered B which is Correct!
    Correct answer b. The general step-down sequence begins with the support department that renders
    the greatest amount of service. There, the Personnel Department would be first and the Information
    Systems Department would not be allocated to the Personnel Department.
    7. Render Inc. has four support departments (maintenance, power, human resources, and legal)
    and three operating departments. The support departments provide services to the operating
    departments as well as to the other support departments. The method of allocating the costs of
    the support departments that best recognizes the mutual services rendered by support
    departments to other support departments is the

    a. direct allocation method.


    b. dual-rate allocation method.
    c. step-down allocation method.
    d. reciprocal allocation method.

    You have answered D which is Correct!

    Correct answer d. The reciprocal allocation method allocates costs by explicitly including the mutual
    services provided among support departments and allows for the full incorporation of
    interdepartmental relationships.

    8. Logo Inc. has two data services departments (the Systems Department and the Facilities
    Department) that provide support to the company’s three production departments (Machining
    Department, Assembly Department, and Finishing Department). The overhead costs of the
    Systems Department are allocated to other departments on the basis of computer usage hours.
    The overhead costs of the Facilities Department are allocated based on square feet occupied
    (in thousands). Other information pertaining to Logo is as follows.

    Computer Square Feet


    Department Overhead Usage Hours Occupied
    Systems $200,000 300 1,000
    Facilities 100,000 900 600
    Machining 400,000 3,600 2,000
    Assembly 550,000 1,800 3,000
    Finishing 620,000 2,700 5,000
    9,300 11,600

    If Logo employs the direct method of allocating service department costs, the overhead of the
    Systems Department would be allocated by dividing the overhead amount by

    a. 1,200 hours.
    b. 8,100 hours.
    c. 9,000 hours.
    d. 9,300 hours.
    You have answered C which is Wrong
    Correct answer b. Using the direct method of allocation, only the hours of the production
    departments would be included in the allocation base (3600 + 1800 + 2700 = 8100).

    9. Adam Corporation manufactures computer tables and has the following budgeted indirect
    manufacturing cost information for next year.

    Support Departments Operating Departments Total


    Maintenance Systems Machining Fabrication
    Budgeted
    overhead $360,000 $95,000 $200,000 $300,000 $955,000

    Support work furnished

    From Maintenance 10% 50% 40% 100%


    From Systems 5% 45% 50% 100%

    If Adam uses the step-down method, beginning with the Maintenance Department, to allocate
    support department costs to production departments, the total overhead (rounded to the nearest
    dollar) for the Machining Department to allocate to its products would be

    a. $415,526.
    b. $422,750.
    c. $442,053.
    d. $445,000.

    You have answered C which is Correct!

    Correct answer c. Total overhead in the Machining Department is $442,053 as presented below.
    Machining overhead $200,000
    Maintenance ($360,000 x .5) 180,000
    Systems [($95,000 + $36,000*) x .473687**] 62,053
    Total overhead $442,053
    *Maintenance allocated to Systems ($360,000 x 10%)
    **1.05 x 45%

    10. Adam Corporation manufactures computer tables and has the following budgeted indirect
    manufacturing cost information for next year.

    Support Departments Operating Departments Total


    Maintenance Systems Machining Fabrication
    Budgeted
    overhead $360,000 $95,000 $200,000 $300,000 $955,000

    Support work furnished

    From Maintenance 10% 50% 40% 100%


    From Systems 5% 45% 50% 100%

    If Adam uses the direct method to allocate support department costs to production departments,
    the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its
    products would be

    a. $418,000.
    b. $422,750.
    c. $442,053.
    d. $445,000.

    You have answered which is Wrong

    Correct answer d. The total overhead allocated by the Machining Department to Adam’s product is
    $445,000 calculated as follows.

    % allocation Maint. to Mach.: 50% ÷ (40% + 50%) = .555


    Allocation .555 x $360,000 = $199,800
    % allocation Systems to Mach.: 45% ÷ (45% + 50%) = .4736842
    Allocation .4736842 x $95,000 = $45,200
    Total allocation $199,800 + $45,200 + $200,000 = $445,000

    Summary of Performance in this Homework

    Percentage score: 70
    Remarks :Very Good, Keep this up

    Take appropriate corrective actions based on the feedback. A student who attends all classes, all
    homework and all mocks and scores just 30/35% on an average, will move to the 4th hour of the
    exam with 95% probability. Those who receive low score, should think that they have got a chance to
    become strong and use their time to remain focused towards the learning objectives. They may have
    to give some more time for the whiteboard and excel sheet revisions - which is the basic building
    block.

    Regards,

    Sushanta Bala
     

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