16.3 Allocating costs of multiple support departments

Question 1

3 steps in allocating cost of multiple support departments

Answer 1

1. trace or allocate all costs to departments
2. allocate plant administration costs to other support departments and operating departments
3. allocate engineering and production control and materials management costs to the machining and assmbly operating departments

Question 2

supervision costs are an

Answer 2

indirect cost of individual jobs

Question 3

rent, utilities, and insurance costs cannot be traced to each department because these costs are incurred for all of the manufacturing facilitiy. So what do we do with them?

Answer 3

allocated to different departments on their cost driver

Question 4

plant administration cost - allocation rate equation

Answer 4

allocation rate =
total plant administration costs / total supervision salaries

Question 5

for step 3 of allocating costs of multiple support departments, there is 3 ways to do it

Answer 5

1. direct
2. step down
3. reciprocal

Question 6

allocates each support departments budgeted costs to operating departments only (no allocations to other support department)
which step 3 method is this?

Answer 6

direct method

Question 7

allocates support department costs to other support departments and operating departments in a sequential manner that partially recognizes the mutual services provided among support departments
which step 3 method is this?

Answer 7

step down method

Question 8

this method requires managers to rank (sequence) the support departments in the order that the _____ allocation is to proceed

Answer 8

step down

Question 9

once support departments cost have been allocated to other departments no subsequent support departments costs are

Answer 9

allocated back to it

Question 10

_____ method does not recognize the total services that support department provide to each other

Answer 10

step down method

Question 11

allocates support department costs to operating departments by fully recognizing the mutual services provided among all support departments
which step 3 method is this?

Answer 11

reciprocal method

Question 12

which method is the most precise

Answer 12

reciprocal method

Question 13

advantages of the direct and step down methods

Answer 13

simple for managers to compute and understand relative to the reciprocal method