Chapter 11 Appendix B Service Department Charges
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Chapter 11 Appendix B Service Department Charges Answer Key
True / False Questions
1. For performance evaluation purposes, budgeted service department costs, instead of actual
service department costs, should be charged to the operating departments.
2. For performance evaluation purposes, the best way to charge the fixed costs of a service
department to operating departments is with an allocation base such as direct labor-hours that
reflects the actual level of activity for the period.
3. Lump-sum charges for service department fixed costs should usually be based on budgeted
activity for the forthcoming period.
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4. Since service departments do not engage in production, there can be no variances in service
department costs.
5. The variable costs of service departments should typically be charged to operating
departments on the basis of the number of units produced in the operating departments.
6. All of a service department’s actual costs should be allocated or charged to operating
departments to ensure that they are fully recovered.
Multiple Choice Questions
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7. For performance evaluation purposes, variable costs of service departments should be
charged to operating departments at the end of the period on the basis of:
8. Fixed service department costs should be charged to operating departments at the end of the
period according to which one of the following the formulas?
9. Piedmont Company has one service department and three operating departments. During a
particular year, a substantial variance developed between the actual costs and the budgeted
costs of the service department. For performance evaluation purposes, the variance should be:
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10. Matrix Company has a Maintenance Department that maintains the machines in
departments A and B. Next year Department A is budgeted to have 6,000 machine-hours of
activity and Department B is budgeted to have 24,000 machine-hours. Fixed costs in the
Maintenance Department are budgeted at $60,000 per year and are incurred in order to
support peak period activity. Department A requires 25% of the peak period capacity and
Department B requires 75% of the peak period capacity. How much of the fixed cost of the
Maintenance Department should be charged to Department B?
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11. Norgaard 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 $70 per
order. The Customer Service Department’s fixed costs are budgeted at $245,000 for the year.
The fixed costs of the Customer Service Department are determined based on the peak period
orders.
At the end of the year, actual Customer Service Department variable costs totaled $348,920
and fixed costs totaled $259,790. The Consumer Division had a total of 1,520 orders and the
Commercial Division had a total of 3,360 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?
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12. Fairview Hospital has a Food Services department that provides food for patients in all
other departments of the hospital. For May, variable food costs were budgeted at $3 per meal,
based on 15,000 meals served during the month. At the end of the month, it was determined
that 16,000 meals had been served at a total cost of $54,000. How much food cost should be
charged to the other departments at the end of the month?
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13. Hilbun 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 $34 per shipment. The Logistics Department’s fixed
costs are budgeted at $371,700 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
How much Logistics Department cost should be charged to the Atlantic Division at the end of
the year for performance evaluation purposes?
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14. Janner 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 $79 per order. The
Order Fulfillment Department’s fixed costs are budgeted at $302,500 for the year. The fixed
costs of the Order Fulfillment Department are determined based on the peak period orders.
At the end of the year, actual Order Fulfillment Department variable costs totaled $446,016
and fixed costs totaled $320,930. The Consumer Division had a total of 1,540 orders and the
Commercial Division had a total of 3,980 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?
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15. Dunkle 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:
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Paints Division at the end of the year?
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16. The fixed costs of Baxter Company’s personnel department are allocated to operating
departments on the basis of direct labor-hours. The following data have been provided:
The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred
in order to support long-run average requirements. How much of this fixed cost should be
charged to Operating Department X at the end of the year for performance evaluation
purposes?
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17. Peake 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:
For performance evaluation purposes, how much Maintenance Department cost should be
charged to the Stains Division at the end of the year?
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18. Wilson Company maintains a cafeteria for its employees. For June, variable food costs
were budgeted at $45 per employee based on a budgeted level of 200 employees in other
departments. During the month, an average of 190 employees worked in other departments
and actual food costs totaled $9,250. How much food cost should be charged to the other
departments at the end of the month for performance evaluation purposes?
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19. Omeara 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 $48 per shipment. The Logistics Department’s fixed
costs are budgeted at $431,600 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
At the end of the year, actual Logistics Department variable costs totaled $505,920 and fixed
costs totaled $438,080. The Atlantic Division had a total of 3,900 shipments and the Pacific
Division had a total of 6,300 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?
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20. Herriott 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 $43 per shipment. The Logistics Department’s fixed
costs are budgeted at $209,000 for the year. The fixed costs of the Logistics Department are
determined based on peak-period demand.
At the end of the year, actual Logistics Department variable costs totaled $246,960 and fixed
costs totaled $217,870. The Atlantic Division had a total of 3,000 shipments and the Pacific
Division had a total of 2,600 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?
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Marazzi 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 $47 per shipment. The Logistics Department’s fixed costs are
budgeted at $328,600 for the year. The fixed costs of the Logistics Department are determined
based on peak-period demand.
At the end of the year, actual Logistics Department variable costs totaled $333,270 and fixed
costs totaled $340,240. The East Division had a total of 2,300 shipments and the West
Division had a total of 4,600 shipments for the year.
21. How much Logistics Department cost should be allocated to the West Division at the end
of the year?
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22. How much actual Logistics Department cost should not be allocated to the operating
divisions at the end of the year?
The Juab Company has a Freight Department that delivers scrap metal from salvage yards to
its two fabricating facilities—the Emory Plant and the Salina Plant. Operating data for the two
plants for last year follow:
Budgeted costs consist of $150,000 fixed costs and $0.50 variable cost for each ton of scrap
delivered to the plants. Actual costs incurred in the Freight Department were $52,800
variable, and $165,000 fixed. Juab allocates variable and fixed service department costs
separately. The level of budgeted fixed costs is determined by peak-period needs. The Emory
Plant requires 40% of the peak-period capacity and the Salina Plant requires 60%.
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23. How much fixed Freight Department costs should be charged to the Emory Plant at the
end of the year for performance evaluation purposes?
24. How much variable Freight Department costs should be charged to the Salina Plant at the
end of the year for performance evaluation purposes?
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25. How much of the actual Freight Department cost should not be charged to either plant at
the end of the year for performance evaluation purposes?
Lindon Hospital has a Food Services Department that provides meals for all patients in the
hospital. Budgeted and actual meals served for June follow:
The budgeted variable cost of meals for June was $75,000; the actual variable cost of meals
for the month was $97,500.
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26. How much Food Services cost should be charged to the Surgical Department at the end of
June for performance evaluation purposes?
27. How much of the actual Food Services cost for June should be kept in the Food Services
Department and not be charged to the other departments for performance evaluation
purposes?