110) Which of the following is not one of the objectives of cost allocation?
A) Motivate managers to exert a high-level of effort.
B) Provide useful departmental and product costs.
C) Identify production constraints.
D) Provide the right incentive for managers to make decisions.
111) Examples of pressures that can lead to financial fraud do not include:
A) unrealistic budgets.
B) inappropriate bonus plans.
C) overemphasis on long-term results.
D) overemphasis on short-term results.
112) Which one of the following firms is likely to experience dysfunctional motivation on the
part of its managers due to its allocation methods? (CMA adapted)
A) To allocate depreciation of forklifts used by workers at its central warehouse, Amir
Electronics uses predetermined amounts calculated on the basis of the long-term average use of
the services provided by the warehouse to the various segments.
B) Seattle Electronics uses the sales revenue of its various divisions to allocate costs connected
with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional
performance.
C) Rose Industrial does not allow its service departments to pass on their cost overruns to
production departments.
D) Xi Enterprises’ management information system (MIS) is operated out of headquarters and
serves its various divisions. Xi’s allocation of MIS-related costs to its divisions is limited to costs
the divisions will incur if they were to outsource their MIS needs.
113) The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies:
A) use investment centers to evaluate top managers.
B) report on the adequacy of the company’s internal controls over financial reporting.
C) compensate managers with fixed compensation plans only.
D) eliminate stock options for managerial compensation.
114) Which of the following is not an internal control?
A) Rotating personnel among tasks.
B) Separation of duties.
C) Setting limits on the amount of expenditures.
D) Using absolute performance standards.
115) Internal controls include all of the following except:
A) using contingent compensation plans.
B) requiring management authorization for the use of a company’s assets.
C) reconciling various sets of books.
D) requiring employees to take vacations.
116) Maryland Hotels operates a centralized call center for the reservation needs of its time-share
units. Costs associated with use of the center are charged to the time-share group (Luxury,
Resort, Standard, and Budget) where a reservation is made on the basis of time on a call. Idle
time of the reservation agents, time spent on calls where no reservation is made, and the fixed
cost of the equipment are allocated on the number of reservations made in each group. Due to
recent increased competition in the time-share business, the company has decided that it is
necessary to more accurately allocate its costs to price its services competitively and profitably.
During the current period, the use of the call center for each group was as follows (in thousands
of seconds for time usage and in number of reservations):
Division Time Usage Number of Reservations
Luxury 750,000 50,000
Resort 1,250,000 100,000
Standard 2,000,000 300,000
Budget 1,500,000 250,000
During this period, the cost of the computer center amounted to $2,410,000 for personnel and
$1,240,000 for equipment and other costs.
Required:
Determine the allocation to each of the divisions using: (You may round all decimals to three
places.)
a. a single rate based on time used.
b. multiple rates based on time used (for personnel costs) and number of reservations (for
equipment and other cost).
117) Atlantic Resorts operates a centralized call center for the reservation needs of its time-share
units. Costs associated with use of the center are charged to the time-share group (Luxury,
Standard, and Budget) where a reservation is made on the basis of time spent on a call. Due to
recent increased competition in the time-share business, the company has decided that it is
necessary to more accurately allocate its costs to price its services competitively and profitably.
During the current period, the use of the call center for each group was as follows (in thousands
of seconds for time usage and in number of reservations):
Division Time Usage Number of Reservations
Luxury 500,000 50,000
Standard 2,000,000 300,000
Budget 1,500,000 250,000
During this period, the cost of the computer center amounted to $1,760,000 for personnel and
$1,240,000 for equipment and other costs.
Required:
Determine the allocation to each of the divisions using: (Round all decimals to three places.)
a. a single rate based on time used.
b. multiple rates based on time used (for personnel costs) and number of reservations (for
equipment and other cost).
118) Seaside Resorts operates a centralized call center for the reservation needs of its time-share
units. Costs associated with use of the center are charged to the time-share group (Luxury and
Standard) where a reservation is made on the basis of time spent on a call. Due to recent
increased competition in the time-share business, the company has decided that it is necessary to
more accurately allocate its costs to price its services competitively and profitably. During the
current period, the use of the call center for each group was as follows (in thousands of seconds
for time usage and in number of reservations):
Division Time Usage Number of Reservations
Luxury 500,000 50,000
Standard 2,000,000 300,000
During this period, the cost of the computer center amounted to $1,220,000 for personnel and
$960,000 for equipment and other costs.
Required:
Determine the allocation to each of the divisions using: (Round all decimals to three places.)
a. a single rate based on time used.
b. multiple rates based on time used (for personnel costs) and number of reservations (for
equipment and other cost).
119) The Document Creation Center (DCC) for Atlas Corp. provides document services for three
departments in the St. Louis office. The following budget has been prepared for the month.
Budgeted usage:
Software Development 160,000 pages
Training 300,000 pages
Management 340,000 pages
Cost equation $31,000 + $0.03 per page
Required:
If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated
to the three user departments? (Use three decimal places in your calculations.)
120) The legal department for Trump Corporation provides legal services for four departments in
the Manhattan office. The following budget has been prepared for the month.
Budgeted usage:
Purchasing 160 contracts
Marketing 200 contracts
Training 300 contracts
Management 340 contracts
Cost equation $167,500 + $50 per contract
Required:
If Trump uses a dual-rate for allocating its costs based on usage, how much cost will be allocated
to the four user departments? (Use three decimal places in your calculations.)
121) The Human Resources Department for Vargis Corp. provides personnel services for two
departments in the Kansas City office. The following budget has been prepared for the month.
Budgeted:
Production 860 employees
Management 140 employees
Cost equation $46,500 + $20 per employee
Required:
If Vargis uses a dual-rate for allocating its costs based on employees, how much cost will be
allocated to the two departments? (Use three decimal places in your calculations.)
122) The Document Creation Center (DCC) for Atlas Corp. provides document services for three
departments in the St. Louis office. The following budget has been prepared for the month.
Pages Documents
Budgeted usage:
Software Development 320,000 2,500
Training 600,000 4,500
Management 480,000 5,500
Costs:
Fixed $ 63,000
Variable $ 35,000
Required:
If DCC uses a dual-rate for allocating its costs, allocating fixed costs based on number of
documents and variable costs based on number of pages, how much cost will be allocated to the
three user departments? (Use three decimal places in your calculations.)
123) The legal department for Basil Corp. provides legal services for four departments in the
Manhattan office. The following budget has been prepared for the month.
Budgeted usage: Contracts Pages Reviewed
Purchasing 160 3,200
Marketing 200 7,200
Training 300 9,000
Management 240 2,400
Costs:
Fixed $ 267,000
Variable $ 105,000
Required:
If Basil uses a dual-rate for allocating its costs, allocating fixed costs based on number of
contracts and variable costs based on number of pages reviewed, how much cost will be
allocated to the four user departments? (Round fixed cost percentages to three decimal places
and variable rate to four decimal places.)
124) Waverley Services has three divisions, commercial, retail, and consumer, that share the
common costs of the company’s computer server network. The annual common costs are
$1,200,000. You have been provided with the following information for the upcoming year:
Connections Time on Network (hours)
Commercial 30,000 120,000
Retail 40,000 150,000
Consumer 50,000 290,000
Required:
a. What is the allocation rate for the upcoming year assuming Waverley uses the single-rate
method and allocates common costs based on the number of connections? Calculate the allocated
amount for each division.
b. What is the allocation rate for the upcoming year assuming Waverley uses the single-rate
method and allocates common costs based on the time on network? (Do not round rate – carry
out six decimal places.) Calculate the allocated amount for each division.
c. The cost accountant determined $850,000 of the server network’s costs were fixed and should
be allocated based on the number of connections. The remaining costs should be allocated based
on the time on the network. What is the total server network costs allocated to each division?
(Round immediate calculations to three decimal places.)
125) Collins Enterprises has four divisions, commercial, retail, research, and consumer, that
share the common costs of the company’s computer server network. The annual common costs
are $2,400,000. You have been provided with the following information for the upcoming year:
Connections Time on Network (hours)
Commercial 60,000 120,000
Retail 80,000 150,000
Research 40,000 100,000
Consumer 120,000 330,000
Required:
a. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method
and allocates common costs based on the number of connections? (Do not round rate – carry
out six decimal places.) Calculate the allocated amount for each division.
b. What is the allocation rate for the upcoming year assuming Collins uses the single-rate method
and allocates common costs based on the time on network? (Do not round rate – carry out six
decimal places.) Calculate the allocated amount for each division.
c. The cost accountant determined $1,700,000 of the server network’s costs were fixed and
should be allocated based on the number of connections. The remaining costs should be allocated
based on the time on the network. What is the total server network costs allocated to each
division? (Round immediate calculations to three decimal places.)
126) Jamison Industries has three divisions, commercial, retail, and consumer, that share the
common costs of the company’s computer server network. The annual common costs are
$2,400,000. You have been provided with the following information for the upcoming year:
Connections Time on Network (hours)
Commercial 60,000 120,000
Retail 80,000 150,000
Consumer 100,000 330,000
Required:
(Use three decimal places in your calculations.)
a. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate
method and allocates common costs based on the number of connections? Calculate the allocated
amount for each division.
b. What is the allocation rate for the upcoming year assuming Jamison uses the single-rate
method and allocates common costs based on the time on network? Calculate the allocated
amount for each division.
127) Markov Engineering has three divisions, commercial, retail, and consumer, that share the
common costs of the company’s computer server network. The annual common costs are
$2,400,000. You have been provided with the following information for the upcoming year:
Connections Time on Network (hours)
Commercial 60,000 120,000
Retail 80,000 150,000
Consumer 100,000 330,000
Required:
The cost accountant determined $1,800,000 of the server network’s costs were fixed and should
be allocated based on the number of connections. The remaining costs should be allocated based
on the time on the network. What is the total server network costs allocated to each division?
(Use three decimal places in your calculations.)