Managerial Accounting, 16e (Garrison)
Chapter 11B: Service Department Charges
1) In service department cost allocations, sales dollars should be used as an allocation base
whenever possible.
2) For performance evaluation purposes, variable service department costs should be charged to
operating departments in predetermined, lump-sum amounts.
3) All charges for services computed using budgeted rather than actual rates should be removed
from an operating department’s performance report.
4) Since sales dollars represents “ability to pay,” it is superior to most other bases used for
allocating or charging service department costs.
5) For performance evaluation purposes, any variance over budgeted fixed costs in a service
department should be the responsibility of the service department and should not be charged to
the departments that use the service.
6) For performance evaluation purposes, the actual fixed costs of a service department should be
charged to the departments that consume the service in proportion to the actual services provided
to the consuming departments during the period.
7) Whenever possible, service department costs should be separated into fixed and variable costs
and charged separately to operating departments.
8) Variable service department costs should be charged to operating departments at the end of
the period according to the formula:
A) Budgeted rate x Budgeted activity.
B) Budgeted rate x Actual activity.
C) Actual rate x Actual activity.
D) Budgeted total cost x Percentage of peak-period capacity required.
9) Which of the following companies is following a policy with respect to the costs of service
departments that is not recommended?
A) To charge operating departments with the depreciation of forklifts used at its central
warehouse, Shalimar Electronics charges predetermined lump-sum amounts calculated on the
basis of the long-term average use of the services provided by the warehouse to the various
segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate costs
connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of their
inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its service
departments to its operating departments.
10) For performance evaluation purposes, the fixed costs of a service department should be
charged to operating departments using:
A) actual fixed costs and the budgeted level of activity for the period.
B) budgeted fixed costs and the actual level of activity for the period.
C) budgeted fixed costs and the peak-period or long-run average servicing capacity.
D) actual fixed costs and the peak-period or long-run average servicing capacity.
11) The long-run average or peak period needs of operating departments would be the most
suitable base for allocating:
A) the variable element of power costs.
B) the fixed element of power costs.
C) total power costs.
D) any spending variance associated with power costs.
12) Mangiamele Corporation’s Maintenance Department provides services to the company’s two
operating divisions—the Paints Division and the Stains Division. The variable costs of the
Maintenance Department are budgeted based on the number of cases produced by the operating
departments. The fixed costs of the Maintenance Department are budgeted based on the number
of cases produced by the operating departments during the peak period. Data appear below:
Maintenance Department:
Budgeted variable cost
$
4
per case
Budgeted total fixed cost
$
693,000
Paints Division:
Percentage of peak period capacity required
30
%
Actual cases
18,000
Stains Division:
Percentage of peak period capacity required
70
%
Actual cases
59,000
–
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Paints Division at the end of the year?
A) $234,000
B) $500,500
C) $279,900
D) $300,300
Variable cost charges:
$4 per case × 18,000 cases
Fixed cost charges:
30% × $693,000
Total charges
–
13) Oaks Company maintains a cafeteria for its employees. For June, variable food costs were
budgeted at $48 per employee based on a budgeted level of 1,000 employees in other
departments. During the month, an average of 1,100 employees worked in other departments.
The cafeteria’s total food costs for the month came to $57,750. How much food cost should be
charged to the other departments at the end of the month for performance evaluation purposes?
A) $57,750
B) $52,500
C) $48,000
D) $52,800
14) Tabarez Corporation’s Maintenance Department provides services to the company’s two
operating divisions—the Paints Division and the Stains Division. The variable costs of the
Maintenance Department are budgeted based on the number of cases produced by the operating
departments. The fixed costs of the Maintenance Department are budgeted based on the number
of cases produced by the operating departments during the peak period. Data appear below:
Maintenance Department:
Budgeted variable cost
$
2
per case
Budgeted total fixed cost
$
1,140,000
Actual total variable cost
$
239,400
Actual total fixed cost
$
1,157,980
Paints Division:
Percentage of peak period capacity required
30
%
Budgeted cases
29,000
Actual cases
29,040
Stains Division:
Percentage of peak period capacity required
70
%
Budgeted cases
85,000
Actual cases
84,960
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Stains Division at the end of the year?
A) $989,002
B) $1,041,416
C) $967,920
D) $1,019,520
Variable cost charges:
$2 per case × 84,960 cases
$
Fixed cost charges:
70% × $1,140,000
Total charges
$
15) Schabel Corporation has two operating divisions—a Consumer Division and a Commercial
Division. The company’s Customer Service Department provides services to both divisions. The
variable costs of the Customer Service Department are budgeted at $72 per order. The Customer
Service Department’s fixed costs are budgeted at $695,400 for the year. The fixed costs of the
Customer Service Department are determined based on the peak period orders.
Percentage of Peak Period
Capacity Required
Budgeted Orders
Consumer Division
25
%
2,600
Commercial Division
75
%
9,600
At the end of the year, actual Customer Service Department variable costs totaled $891,089 and
fixed costs totaled $709,820. The Consumer Division had a total of 2,610 orders and the
Commercial Division had a total of 9,580 orders for the year. For performance evaluation
purposes, how much actual Customer Service Department cost should NOT be charged to the
operating divisions at the end of the year?
A) $13,409
B) $0
C) $14,420
D) $27,829
Variable cost charges:
Consumer Division: $72 per order × 2,610 orders
187,920
Commercial Division: $72 per order × 9,580 orders
689,760
Total variable cost charges
877,680
Total actual costs incurred
Total charges
Spending variance
–
16) The medical services department of Fischer Company budgeted $25 of variable medical
expenses per employee for May, based on 2,000 employees in operating departments. During
May an average of 1,980 employees were employed in operating departments. Actual variable
medical expenses totaled $50,700 for the month. How much variable medical expenses should be
charged to operating departments at the end of May for performance evaluation purposes?
A) $50,700
B) $49,500
C) $50,000
D) $51,212
17) Levar Corporation has two operating divisions—a Consumer Division and a Commercial
Division. The company’s Order Fulfillment Department provides services to both divisions. The
variable costs of the Order Fulfillment Department are budgeted at $73 per order. The Order
Fulfillment Department’s fixed costs are budgeted at $470,400 for the year. The fixed costs of the
Order Fulfillment Department are determined based on the peak period orders.
Percentage of Peak Period
Capacity Required
Budgeted Orders
Consumer Division
25
%
1,800
Commercial Division
75
%
6,600
–
At the end of the year, actual Order Fulfillment Department variable costs totaled $621,600 and
fixed costs totaled $473,970. The Consumer Division had a total of 1,840 orders and the
Commercial Division had a total of 6,560 orders for the year. For purposes of evaluation
performance, how much Order Fulfillment Department cost should be charged to the
Commercial Division at the end of the year?
A) $831,680
B) $855,588
C) $840,918
D) $846,240
Variable cost charges:
$73 per order × 6,560 orders
Fixed cost charges:
75% × $470,400
Total charges
–
18) Macumber Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $36 per shipment. The Logistics Department’s fixed costs
are budgeted at $234,000 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period
Capacity Required
Actual Shipments
Atlantic Division
30
%
1,100
Pacific Division
70
%
3,400
–
How much Logistics Department cost should be charged to the Atlantic Division at the end of
the year for performance evaluation purposes?
A) $198,000
B) $109,800
C) $118,800
D) $96,800
Atlantic Division
Variable cost charges:
$36 per shipment × 1,100 shipments
Fixed cost charges:
30% × $234,000
Total charges
109,800
–
19) Gretter Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $36 per shipment. The Logistics Department’s fixed costs
are budgeted at $399,600 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period
Capacity Required
Budgeted
Shipments
Atlantic Division
25
%
1,600
Pacific Division
75
%
5,800
–
At the end of the year, actual Logistics Department variable costs totaled $305,040 and fixed
costs totaled $418,680. The Atlantic Division had a total of 2,600 shipments and the Pacific
Division had a total of 5,600 shipments for the year. For performance evaluation purposes, how
much actual Logistics Department cost should NOT be charged to the operating divisions at the
end of the year?
A) $28,920
B) $9,840
C) $19,080
D) $0
Fixed
Total actual costs incurred
305,040
Total charges
295,200
Spending variance
9,840
–
20) Fox Company has the following data concerning the machine-hours in its operating
departments:
Department
A
Department
B
Department
C
Machine-hours — long-run average
10,000
30,000
20,000
Machine-hours — actual
9,000
24,000
18,000
–
Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed
maintenance costs are incurred in order to service long-run average demand. The actual fixed
maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to
Department B at the end of the year for performance evaluation purposes?
A) $12,000
B) $14,400
C) $15,000
D) $18,000
21) Erholm Corporation has two operating divisions—an Atlantic Division and a Pacific
Division. The company’s Logistics Department services both divisions. The variable costs of the
Logistics Department are budgeted at $31 per shipment. The Logistics Department’s fixed costs
are budgeted at $411,800 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
Percentage of Peak Period
Capacity Required
Budgeted
Shipments
Atlantic Division
35
%
1,900
Pacific Division
65
%
5,200
–
At the end of the year, actual Logistics Department variable costs totaled $290,700 and fixed
costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments and the Pacific
Division had a total of 5,100 shipments for the year. How much Logistics Department cost
should be charged to the Pacific Division at the end of the year for performance evaluation
purposes?
A) $391,453
B) $425,770
C) $445,498
D) $409,502
Variable cost charges:
$31 per shipment × 5,100 shipments
158,100
Fixed cost charges:
65% × $411,800
267,670
Total charges
425,770
–
22) Frame Corporation’s Maintenance Department provides services to the company’s two
operating divisions—the Paints Division and the Stains Division. The variable costs of the
Maintenance Department are budgeted based on the number of cases produced by the operating
departments. The fixed costs of the Maintenance Department are determined by the number of
cases produced by the operating departments during the peak-period. Data appear below:
Maintenance Department:
Budgeted variable cost
$
per case
Budgeted total fixed cost
$
Actual total variable cost
$
Actual total fixed cost
$
Paints Division:
Percentage of peak-period capacity required
%
Budgeted cases
Actual cases
Stains Division:
Percentage of peak-period capacity required
%
Budgeted cases
Actual cases
How much Maintenance Department cost should be allocated to the Stains Division at the end of
the year?
A) $395,313
B) $414,187
C) $405,610
D) $386,960
Variable cost charges:
$6 per case × 28,960 cases
173,760
Fixed cost charges:
65% × $328,000
213,200
Total charges
386,960
23) Frame Corporation’s Maintenance Department provides services to the company’s two
operating divisions—the Paints Division and the Stains Division. The variable costs of the
Maintenance Department are budgeted based on the number of cases produced by the operating
departments. The fixed costs of the Maintenance Department are determined by the number of
cases produced by the operating departments during the peak-period. Data appear below:
Maintenance Department:
Budgeted variable cost
$
per case
Budgeted total fixed cost
$
Actual total variable cost
$
Actual total fixed cost
$
Paints Division:
Percentage of peak-period capacity required
%
Budgeted cases
Actual cases
Stains Division:
Percentage of peak-period capacity required
%
Budgeted cases
Actual cases
How much actual Maintenance Department cost should not be allocated to the operating
divisions at the end of the year?
A) $12,134
B) $8,194
C) $0
D) $3,940
Total actual costs incurred
254,014
$
331,940
Total charges
245,820
328,000
Spending variance
$
24) Wollan Corporation has two operating divisions—an East Division and a West Division. The
company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $44 per shipment. The Logistics Department’s fixed costs are
budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period
Capacity Required
Budgeted
Shipments
East Division
40
%
1,300
West Division
60
%
3,100
–
At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed
costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division
had a total of 3,000 shipments for the year.
How much Logistics Department cost should be allocated to the West Division at the end of the
year?
A) $289,176
B) $229,644
C) $241,167
D) $274,560
Variable cost charges:
$44 per shipment × 3,000 shipments
132,000
Fixed cost charges:
60% × $237,600
142,560
Total charges
274,560
–
25) Wollan Corporation has two operating divisions—an East Division and a West Division. The
company’s Logistics Department services both divisions. The variable costs of the Logistics
Department are budgeted at $44 per shipment. The Logistics Department’s fixed costs are
budgeted at $237,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
Percentage of Peak-period
Capacity Required
Budgeted
Shipments
East Division
40
%
1,300
West Division
60
%
3,100
–
At the end of the year, actual Logistics Department variable costs totaled $332,880 and fixed
costs totaled $253,960. The East Division had a total of 4,300 shipments and the West Division
had a total of 3,000 shipments for the year.
How much actual Logistics Department cost should not be allocated to the operating divisions at
the end of the year?
A) $28,040
B) $0
C) $16,360
D) $11,680
Fixed
Total actual costs incurred
332,880
Total charges
321,200
Spending variance
–
26) The Downstate Block Company has a trucking department that delivers crushed stone from
the company’s quarry to its two cement block production facilities—the West Plant and the East
Plant. Budgeted costs for the trucking department are $700,000 per year in fixed costs and $0.50
per ton variable cost. Last year, 75,000 tons of crushed stone were budgeted to be delivered to
the West Plant and 90,000 tons of crushed stone to the East Plant. During the year, the trucking
department actually delivered 74,000 tons of crushed stone to the West Plant and 92,000 tons to
the East Plant. Its actual costs for the year were $81,000 variable and $708,000 fixed. The level
of budgeted fixed costs is determined by peak-period requirements. The West Plant requires 45%
of the peak-period capacity and the East Plant requires 55%. The company allocates fixed and
variable costs separately.
How much fixed trucking department cost should be charged to the West Plant at the end of the
year?
A) $312,048
B) $315,614
C) $361,600
D) $315,000