5) Under which allocation method are one-way reciprocal support services recognized?
A) direct method
B) artificial cost method
C) reciprocal method
D) step-down method
6) The step-down method ________.
A) partially recognizes the services provided among support departments
B) does not recognize the total services that support departments provide to each other
C) is conceptually the most precise method
D) results in allocating only the support costs used by operating departments
7) The direct allocation method ________.
A) does not allocate support department costs to other support departments
B) uses information about reciprocal services provided among support departments and can therefore
lead to inaccurate estimates of the cost of operating departments
C) allocates complete reciprocated costs
D) offers key input for outsourcing decisions
8) The reciprocal allocation method ________.
A) is the most widely used because of its simplicity
B) requires the ranking of support departments in the order that the allocation is to proceed
C) highlights the complete reciprocated costs of support departments and how these costs differ from
budgeted or actual costs of the departments
D) 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
9) Complete reciprocated costs ________.
A) are less than the support department’s own costs
B) include the support department’s costs plus any interdepartmental cost allocations
C) are used for step-down allocations
D) are also referred to as budgeted costs
10) Managers of supplier departments ________.
A) view the budgeted rates positively if unfavorable cost variances occur due to price decreases outside
of their control
B) view the budgeted rates negatively if favorable cost variances occur due to price decreases outside of
their control
C) view the budgeted rates negatively if unfavorable cost variances occur due to price increases outside
of their control
D) view the budgeted rates negatively if unfavorable cost variances occur due to price decreases outside
of their control
Answer the following questions using the information below:
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs
of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of
$100,000 are allocated based on the number of employees. The costs of operating departments A and B
are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees
are as follows:
Support Departments
Production
Departments
Maintenance
Department
Personnel
Department
A
B
Budgeted costs
$300,000
$100,000
$160,000
$240,000
Budgeted maintenance-
hours
NA
800
1,200
600
Number of employees
50
NA
200
600
11) Using the direct method, what amount of Maintenance Department costs will be allocated to
Department B?
A) $96,000
B) $100,000
C) $110,000
D) $122,000
12) Using the direct method, what amount of Personnel Department costs will be allocated to Department
B?
A) $82,000
B) $80,000
C) $77,000
D) $75,000
13) Using the step-down method, what amount of Maintenance Department cost will be allocated to
Department B if the service department with the highest percentage of interdepartmental support service
is allocated first? (Round up)
A) $84,143
B) $69,231
C) $66,734
D) $71,443
14) Using the direct method, what amount of Maintenance Department costs will be allocated to
Department A?
A) $210,000
B) $225,000
C) $198,000
D) $200,000
15) Using the direct method, what amount of Personnel Department costs will be allocated to Department
A?
A) $25,000
B) $28,000
C) $30,000
D) $20,000
16) Using the step-down method, what amount of Maintenance Department cost will be allocated to
Department A if the service department with the highest percentage of interdepartmental support service
is allocated first? (Round up)
A) $100,000
B) $132,372
C) $134,472
D) $138,462
Answer the following questions using the information below:
Goldfarb’s Book and Music Store has two service departments, Warehouse and Data Center. Warehouse
Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center
Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of
operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted
warehouse-hours and number of computer log-on hours are as follows:
Support Departments
Production
Departments
Warehouse
Department
Data Center
Department
Music
Books
Budgeted costs
$350,000
$150,000
$125,000
$150,000
Budgeted warehouse-hours
NA
500
1,000
1,500
Number of computer hours
200
NA
800
1,000
17) Using the direct method, what amount of Warehouse Department costs will be allocated to
Department Books?
A) $140,000
B) $210,000
C) $150,000
D) $175,000
18) Using the direct method, what amount of Data Center Department costs will be allocated to
Department Music?
A) $150,000
B) $66,667
C) $83,333
D) $60,000
19) Using the step-down method, what amount of Data Center Department cost will be allocated to the
Warehouse Department if the service department with the highest percentage of interdepartmental
support service is allocated first? (Round up)
A) $50,000
B) $150,000
C) $15,000
D) $0
20) Using the step-down method, what amount of Warehouse Department cost will be allocated to
Department Music if the service department with the highest percentage of interdepartmental support
service is allocated first? (Round up)
A) $233,333
B) $116,667
C) $243,333
D) $121,667
21) Using the step-down method, what amount of Data Center Department cost will be allocated to
Department Music if the service department with the highest percentage of interdepartmental support
service is allocated first? (Round up)
A) $117,342
B) $66,667
C) $92,592
D) $83,333
Answer the following questions using the information below:
Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation
method. The following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
Plant Maintenance PM (Support Dept) $350,000
Data Processing DP (Support Dept) $ 75,000
Machining M (Operating Dept) $225,000
Capping C (Operating Dept) $125,000
Services furnished:
By Plant Maintenance (budgeted labor-hours):
to Data Processing 3,500
to Machining 5,000
to Capping 8,200
By Data Processing (budgeted computer time):
to Plant Maintenance 600
to Machining 3,500
to Capping 600
22) Which of the following linear equations represents the complete reciprocated cost of the Data
Processing Department?
A) DP= $75,000 + (600/4,700) PM
B) DP= $75,000 + (3,500/16,700) PM
C) DP= $75,000 × (600/4,700) + $350,000 × (3,340/16,700)
D) DP= $350,000 + (600/16,700) DP
23) What is the complete reciprocated cost of the Plant Maintenance Department?
A) $393,750
B) $369,459
C) $365,000
D) $375,773
24) What is the complete reciprocated cost of the Data Processing Department?
A) $90,000
B) $118,750
C) $122,971
D) $152,432
Answer the following questions using the information below:
Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The
following data from operations were collected for analysis:
Budgeted manufacturing overhead costs:
Maintenance M (Support Dept) $300,000
Personnel P (Support Dept) $ 160,000
Weaving W (Weaving Dept) $650,000
Colorizing C (Colorizing Dept) $350,000
Services furnished:
By Maintenance (budgeted labor-hours):
to Personnel 1,000
to Weaving 7,000
to Colorizing 4,000
By Personnel (Number of employees serviced):
Plant Maintenance 10
Weaving 30
Colorizing 20
25) Which of the following linear equations represents the complete reciprocated cost of the Personnel
Department?
A) P = $300,000 – $160,000 (1,000/12,000) M
B) P = (1,000/12,000) M
C) P = $160,000 + (1,000/12,000) M
D) P = $160,000
26) What is the complete reciprocated cost of the Maintenance Department?
A) $331,267
B) $326,667
C) $300,000
D) $0
27) What is the complete reciprocated cost of the Personnel Department?
A) $185,000
B) $187,606
C) $160,000
D) $210,000
28) Which of the following is an operating department?
A) machining
B) accounting
C) materials management
D) production control
29) Which of the following is one of the methods of allocating support department costs to operating
departments?
A) dual-cost allocation method
B) incremental method
C) step-down method
D) single-rate cost allocation method
30) The cost-allocation method that allocates each support-department’s costs to operating departments
only is the ________.
A) direct method
B) single-rate cost allocation method
C) step-down method
D) reciprocal method
31) The direct allocation method does not allocate support department costs to other support
departments.
32) The reciprocal method allocates support-department costs to operating departments by fully
recognizing the mutual services provided among all support departments.
33) Both direct and the step-down method can provide relevant information for outsourcing decisions.
34) Complete reciprocated costs is the support department’s own costs plus any interdepartmental cost
allocations.
35) The direct allocation method provides key information for outsourcing decisions regarding support
services.
36) An advantage of the reciprocal method is that it highlights the complete reciprocated costs of support
departments and how these costs differ from budgeted or actual costs of the departments.
37) The direct method is conceptually the most precise method because it considers the mutual services
provided among all support departments.
38) The step-down method allocates support department costs to only operating departments in a
sequential manner.
39) Under the step-down method, once a support department’s costs have been allocated, all subsequent
support-department costs are allocated back to it.
40) Tryst University offers only high-tech graduate-level programs. Tryst has two principal operating
departments, Engineering and Social Sciences, and two support departments, Facility and Technology
Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is
budgeted total maintenance hours. The base used to allocate enrollment services is number of credit
hours for a department. The Facility and Technology Maintenance budget is $450,000, while the
Enrollment Services budget is $900,000. The following chart summarizes budgeted amounts and
allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Engineering
Social
Sciences
Enrollment
Service
$450,000
3,000
6,000
1,000
$900,000
25,000
35,000
Zero
Required:
Use the direct method to allocate support costs to each of the two principal operating departments,
Engineering and Social Sciences. Prepare a schedule showing the support costs allocated to each
department.
F&T Maintenance
$450,000 × 3/9 =
$450,000 × 6/9 =
Enrollment Service
$900,000 × 25/60 =
$900,000 × 35/60 =
41) Marshall University offers only high-tech graduate-level programs. Marshall has two principal
operating departments, Commerce and Social Sciences, and two support departments, Facility and
Technology Maintenance and Enrollment Services. The base used to allocate facility and technology
maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is
number of credit hours for a department. The Facility and Technology Maintenance budget is $500,000,
while the Enrollment Services budget is $900,000. The following chart summarizes budgeted amounts
and allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Commerce
Social
Sciences
Enrollment
Service
$500,000
3,000
6,000
5,000
$900,000
25,000
35,000
Zero
Required:
Prepare a schedule which allocates service department costs using the step-down method with the
sequence of allocation based on the highest-percentage support concept. Compute the total amount of
support costs allocated to each of the two principal operating departments, Commerce and Social
Sciences.
35
42) Gotham University offers only high-tech graduate-level programs. Gotham has two principal
operating departments, Engineering and Computer Sciences, and two support departments, Facility and
Technology Maintenance and Enrollment Services. The base used to allocate facility and technology
maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is
number of credit hours for a department. The Facility and Technology Maintenance budget is $350,000,
while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts
and allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Engineering
Computer
Sciences
F&T
Maintenance
Enrollment
Service
$3,500,000
$1,400,000
$350,000
2,000
1,000
Zero
5,000
$950,000
24,000
36,000
2,000
Zero
Required:
a. Set up algebraic equations in linear equation form for each activity.
b. Determine total costs for each department by solving the equations from part (a) using the reciprocal
method.
(Engineering= Eng; Computer Sciences = CS; Facility and Technical Maintenance = FTM; Enrollment
Service = ES)
43) Craylon Corp has two service departments, S1 and S2, and two production departments, P1 and P2.
The data for April were as follows:
Services provided to:
Activity
Costs
S1
S2
P1
P2
S1
$100,000
20%
40%
50%
S2
$80,000
10%
55%
25%
Fixed Costs
P1
$400,000
P2
$500,000
Required:
a. Set up algebraic equations in linear form for each activity.
b. Determine total costs for each department by solving the equations from part (a) using the reciprocal
method.
44) Describe methods which may be used to allocate support costs within organizations containing
multiple support departments. Discuss advantages and disadvantages of the various methods.