Which of the following methods would be of little use when allocating service department costs to production departments?
Throughout this text, we have emphasized cost allocations only in the operating departments of a company. These operating departments perform the primary purpose of the company—to produce goods and services for consumers. Examples of operating departments are the assembly departments of manufacturing firms and the departments in hotels that take and confirm reservations. Show
The costs of service departments are allocated to the operating departments because they exist to support the operating departments. Examples of service departments are maintenance, administration, cafeterias, laundries, and receiving. Service departments aid multiple production departments at the same time, and accountants must allocate and account for all of these costs. It is crucial that these service department costs be allocated to the operating departments so that the costs of conducting business in the operating departments are clearly and accurately reflected. Accountants allocate service department costs using some type of base. When the companies’ managers choose bases to use, they consider such criteria as the types of services provided, the benefits received, and the fairness of the allocation method. Examples of bases used to allocate service department costs are number of employees, machine-hours, direct labor-hours, square footage, and electricity usage. There are three methods for allocating service department costs:
Next, we will look at each method. MULTIPLE CHOICE QUESTIONS I.The costs of the Human Resources Department in a manufacturing organization must be service to other service departments? 44 Hilton, Managerial Accounting, Seventh Edition 5. Consider the following statements about the direct method of service department cost Treatment). The service departments service each other, and studies have shown that 45 Hilton, Managerial Accounting, Seventh Edition 8. Which of the following methods recognizes some (but not all) of the services that
occur B. Step-down method. Chapter 18 46 11. Duluth Corporation has two service departments (Maintenance and Human Resources) and D. Step-down method. 47 Hilton, Managerial Accounting, Seventh Edition E. No Yes Yes Answer: E LO: 1, 6 Type: N Chapter 18 48 15. Which of the following methods would be of little use when allocating service department Maintenance cost on the basis of square footage and believes that Building Maintenance 4,000 Assuming use of the direct method, over how many square feet would the Building 49 Hilton, Managerial Accounting, Seventh Edition 17. Peterson Company has two
service departments (Cafeteria and Human Resources) and two Cafeteria 40 Peterson uses the direct method of cost allocation and allocates cost on the basis of employees. 5,000 9,000 Assuming use of the step-down method, over how many square feet would the Building Chapter 18 50 19. Anniston, Inc., has two service departments (Human Resources and Building Maintenance) and Human Resources Square Footage Employees Assuming use of the step-down method, which of the following choices 20. Western, Inc., has two service
departments (Human Resources and Building Maintenance) and 3,500 Over how many square feet would the Building
Maintenance cost be Answer: A LO: 1 Type: A Hilton, Managerial Accounting, Seventh Edition 21. Saunders Company has two service departments (Cafeteria and Human Resources) and two 20 Saunders uses the step-down method of cost allocation and allocates cost on the basis of (P1 and P2), and uses the step-down method of cost allocation. Management has determined Number
of Which of the following statements is (are) true if S1 and S2 have respective operating costs of Chapter 18 52 Use the following to answer questions 23-25: Budgeted cost Human Janitorial Sales #1 Sales #2 Sales #3 20,000 30,000 50,000 23. Using the direct method, the amount of Janitorial Department cost allocated to Sales 53 Hilton, Managerial Accounting, Seventh Edition Use the following to answer questions
26-28: Human Resources Use of Use of The budgeted costs in the service departments are: Human Resources, $90,000 and Janitorial,
$50,000. Department is: Chapter 18 54 29. The process of allocating fixed and variable costs separately is called: A. the separate allocation procedure (SAP). C. budgeted costs rather than actual costs, and a rate that combines variable and fixed costs. 55 Hilton, Managerial Accounting, Seventh Edition 33. Gannon Corporation allocates administrative costs on the basis of staff hours. Short-run Dept. 1 Dept. 2 Total If Gannon uses dual-cost accounting procedures and variable administrative costs total A. $80,000. Dept. 1 Dept. 2 Total If Ronan uses dual-cost accounting procedures and fixed administrative costs total
$1,000,000, E. some other amount. Chapter 18 56 35. Nashville Corporation allocates administrative costs on the basis of staff hours. Short-run Dept. 1 Dept. 2 Total Variable and fixed administrative costs total $180,000 and $400,000, respectively. If B. $307,000. 57 Hilton, Managerial Accounting, Seventh Edition 39. Which of the following methods should be selected if a company terminates all processing at C. E. decrease $450,000 by the net realizable value of D and then allocate the total among A, B, Chapter 18 58 43. Ithaca Corporation uses the physical-units method to allocate costs among its three joint P Q The joint cost allocated to Q under the relative-sales-value method would be: 59 Hilton, Managerial Accounting, Seventh Edition 45. Gunniston Corporation manufactures joint products W and X. During a recent period, joint W $14 X The joint cost allocated to W under the net-realizable-value method would be: Product Units Sales Value $40,000 If Processed Further 46. If the joint production costs are allocated based on the physical-units method, the amount of Chapter 18 60 48. If the joint production costs are allocated based on the net-realizable-value method, the C. I and II. 61 Hilton, Managerial Accounting, Seventh Edition 52. Westside Hospital has two service departments (Patient Records and Accounting) and two Chapter 18 62 EXERCISES S1 Number of Budgeted Cost Required: 1. 63 Hilton, Managerial Accounting, Seventh Edition Direct and Step-Down Methods of Service Department Cost Allocation 54. Wyoming State College has two service departments, the Library and Computing Services, User of Service Required: A. $ 800,000 Computing services ($1,800,000): School of Business School of Health 600,000 $ 180,000 Library ($800,000 + $180,000 = $980,000): Chapter 18 64 Direct and Step-Down Methods of Service Department Cost Allocation Human Resources Human Maintenance Engineering The budgeted costs in Chicago's service departments are: Human Resources, $180,000; 65 Hilton, Managerial Accounting, Seventh Edition Answer: $180,000 Molding Assembly 50/90 B. First: Human Resources (serves two other service departments) C. Human Resources ($180,000): $ 9,000 Maintenance ($270,000 + $9,000 = $279,000): Assembly (50%) $
27,900 Engineering ($200,000 + $9,000 + $27,900 = $236,900): $177,675 Molding: $72,000 + $111,600 + $177,675 = $361,275 Chapter 18 66 Direct and Step-Down Methods of Service Department Cost Allocation Repair 120,000 Power Molding Assembly Required: $ 90,000 Molding B. 67 Assembly $111,250 Assembly Hilton, Managerial Accounting, Seventh Edition C. Power ($250,000): $ 50,000 124,444 Molding: $175,000 + $15,556 = $190,556 Chapter 18 68 Which method can be used to allocate service department costs to other departments?The sequential method (also known as the step-down method), allocates costs to operating departments and other service departments sequentially, but only in one direction.
Which of the following refer to the only method of allocating service department costs to producing departments that considers reciprocal service?Answer: D. Step-down method. The allocation of cost using the step-down process can be described as a sequential process.
What are the three methods of allocating service department costs?Three methods used to allocate support-department costs to producing departments are:. direct method.. sequential method, and.. reciprocal method.. What are some methods that can be used to allocate these costs?When allocating costs, there are four allocation methods to choose from.. Direct labor.. Machine time used.. Square footage.. Units produced.. |