Ch. 16

Question 1

2 types of departments

Answer 1

1. operating (production) departments
2. support (service) departments

Question 2

(which department is this)
directly adds value to a product or service
- production line
- machining
- assembling

Answer 2

operating (production) departments

Question 3

(which department is this)
provides the services that assist other internal departments (operating departments and other support departments) in the company
- information systems
- production control
- materials management
- plant maintenance

Answer 3

support (service) departments

Question 4

2 methods of allocating support department costs

Answer 4

1. single rate method
2. dual rate method

Question 5

(which of the 2 methods of allocating support department costs is this)
- does not distinguish between fixed and variable costs
- allocates costs in each cost pool using the same rate per unit of a single allocation base
- a support department would be an example of a cost pool

Answer 5

single rate method

Question 6

(which of the 2 methods of allocating support department costs is this)
- partitions the cost of each support department into two pools, a variable-cost pool and a fixed cost pool
- it allocates each pool using a different cost allocation base

Answer 6

dual rate method

Question 7

under either single or dual rate method, allocation of support costs can be based on one of the 3 following scenarios

Answer 7

1. budgeted overhead rate and budgeted hours
2. budgeted overhead rate and actual hours
3. actual overhead rate and actual hours

Question 8

why are budgeted rates most widely used for allocation

Answer 8

allows a real time monitoring of performance

Question 9

under either single or dual rate method,
allocation of support costs can be based
on rates whose denominators (cost drivers)
are based on what 2 things

Answer 9

1. demand of usage (calculates allocation
   rates on “use” of support department
2. supply of capacity
   (calculates allocation rates on total
   practical capacity of support department

Question 10

(pro and cons of single or dual rate method)
Pro 1: less costly to implement
Pro 2: offers user departments some
operational control over the cahrges they bear
Con 1: may lead operating department managers
to make suboptimal decisions that are in their own
best interest but may be inefficient from the standpoint
of the organization as a whole

Answer 10

single rate method

Question 11

(single or dual rate method)
does not distinguish between fixed and variable costs. a _____ rate is multiplied times actual usage to allocate service department overhead

Answer 11

single rate

Question 12

(pro and cons of single or dual rate method)
Pro 1: guides department managers to make
decisions that benefit both the organization
as a whole and each department
Pro 2: allocating fixed costs based on budgeting
usage helps user departments with both short-run
and long-run planning because user departments
know the costs allocated to them in advance

Answer 12

dual rate method

Question 13

(single or dual rate method)
seperate rates or fixed and variable costs:
- the fixed rate is multiplied by budgeted usage
- the variable rate is multiplied by actual usage

Answer 13

dual rate method

Question 14

(pro and cons of single or dual rate method)
Con 1: required managers to distinguish variable
costs from fixed costs, which is often a challenging task
Con 2: does not indicate to operating managers the
cost of fixed support department resources used because
fixed costs are allocated to operating departments based
on budgeted rather than actual usage
Con 3: allocating fixed costs on the basis of budgeted long
run usage may temp some managers to underestimate
their planned usage

Answer 14

dual rate method

Question 15

support departments whose costs are being allocated often provide _______ as well as to operating departments

Answer 15

reciprocal support to each other

Question 16

cost object =

Answer 16

departments

Question 17

3 steps for multiple support
department cost allocation

Answer 17

1. trace/allocate all costs to dept
2. allocate plant admin. costs
3. allocate support department costs
   (A. direct method, B. step down method, C. reciprocal method)

Question 18

3 methods for step 3 (allocate support department costs) of multiple support department cost allocation

Answer 18

1. direct method
2. step down method
3. reciprocal method

Question 19

(which of the 3 step 3 (allocate support department costs)
of multiple support department cost allocation is this)
allocates each support departments
budgeted costs to operating departments
only. no allocations to other support departments

Answer 19

direct method

Question 20

(which of the 3 step 3 (allocate support department costs)
of multiple support department cost allocation is this)
allocates support department costs to other support
departments and to operating departments in a sequential
manner that partially recognizes the mutual services
provided among all support departments

Answer 20

step down method

Question 21

(which of the 3 step 3 (allocate support department costs)
of multiple support department cost allocation is this)
allocates support department costs to operating
departments by fully recognizing the mutual services
provided among all support departments

Answer 21

reciprocal method

Question 22

the cost of operating a facility, activity, or cost object when that facility, activity, or cost object is shared by two or omore users

Answer 22

common costs

Question 23

arise because each user incurs a lower cost by sharing a facility or activity than operating the facility or performing the activity independently

Answer 23

common costs

Question 24

(which method for common costs is this)
determines the weights for cost allocation
by considering each user of the common
cost facility or activity as a seperate entity

Answer 24

stand alone cost allocation method

Question 25

(which method for common costs is this) individual costs are added together and allocation percentages are calculated from the whole, and applied to the common cost

Answer 25

stand alone cost allocation method (for common costs)

Question 26

(which method for common costs is this) ranks the individual users of a cost object in the order of users most responsible for the common cost and then uses this ranking to allocate the cost among the users

Answer 26

incremental cost allocation method

Question 27

(which method for common costs is this) considers each party as first the primary party and the incremental party by averaging the costs allocated via the stand alone and incremental cost methods

Answer 27

shapley value method

Question 28

inflows of assets companies receive for products or services provided to customers

Answer 28

revenues

Question 29

a package of two or more products or services that is sold for a single price, but whoese individual components may be sold as seperate items at their own "stand alone" prices

Answer 29

bundled product