9.3 Allocating Service Department Costs Flashcards
In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base?
a. units of product sold
b. salary of service department employees
c. units of electric power consumed
d. direct materials usage
c. units of electric power consumed
A basis reflecting cause and effect should be used to allocate service department costs. Each producing department most likely consumes electrical power to produce their respective products.
When allocating service department costs to production departments, the method that does not consider different cost behavior patterns is the
single-rate method
The single rate method combines fixed and variable costs. However, dual rates are preferable because they allow variable costs to be allocated on a different basis from fixed costs.
Allocation of service department costs to the production departments is necessary to
Determine overhead rates
Under ______, service department costs are allocated directly to the producing departments without regard for service rendered by service departments to each other.
Direct Method
Service department costs are allocated to production departments based on an allocation base appropriate to each service department’s function.
Under __________, some costs of service rendered by service departments are allocated to each other.
Step-down method
Under _________ , service rendered by all service departments to each other are recognized.
Reciprocal method
Longstreet Company’s Photocopying Department provides photocopy services for both Departments A and B and has prepared its total budget using the following information for next year:
Fixed costs: $100,000
Available capacity: 4,000,000 pages
Budgeted usage:
- Department A: 1,200,000 pages
- Department B: 2,400,000 pages
Variable cost: $0.03 per page
Assume that Longstreet uses the dual-rate cost allocation method, and the allocation basis is budgeted usage for fixed costs and actual usage for variable costs. How much cost would be allocated to Department A during the year if actual usage for Department A is 1,400,000 pages and actual usage for Department B is 2,100,000 pages?
A. $42,000
B. $82,000
C. $72,000
D. $75,333
D. $75,333
Based on budgeted usage, Department A should be allocated 33 1/3% [1,200,000 pages / (1,200,000 pages + 2,400,000 pages)] of fixed costs, or $33,333 ($100,000 x 33 1/3%). The variable costs are allocated at $.03 per unit for 1,400,000 pages, or $42,000. The sum of the fixed and variable elements is $75,333.
When allocating costs from one department to another, a dual-rate cost-allocation method may be used. The dual-rate cost-allocation method is most useful when
A. Two or more products are produced.
B. Two or more department’ costs are to be allocated.
C. Two or more cost pools are to be allocated.
D. Costs are separated into variable-cost and fixed-cost subpools.
D. Costs are separated into variable-cost and fixed-cost subpools.
The dual-rate method of allocating costs from one department to another involves classifying the costs to be allocated into two pools, one variable and one fixed.
