8/12 - More EQs

Question 1

Receivables collection period

Answer 1

aka days sales outstanding

the average time required to collect AR

= Ave Receivables / Credit Sales per Day

Question 2

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

Dual-rate allocation method.
Direct allocation method.
Step-down allocation method.
Reciprocal allocation method.

Answer 2

Ans. D Reciprocal allocation method

The linear algebra or reciprocal allocation method recognizes reciprocity among service departments by explicitly including the mutual services rendered among support departments.

The direct allocation method allocates the cost of service departments directly to the production departments without any intermediate allocations to other service departments. Thus, this method does not recognize any reciprocity of services among service departments.