Ch 16

Question 1

Operating (production) department (example L’Oréal)

Answer 1

Directly adds value to product (make-up,skin care)

Question 2

Support (service) department (example L’Oréal)

Answer 2

Assists other internal departments (both operating departments and other support departments) -> don’t directly need to produce
- HR, R&D, IT, marketing

Question 3

What do we do in ‘allocating support department costs’

Answer 3

Allocate support costs among various operating departments

Question 4

Single rate method

Answer 4

Doesn’t distinguish bw fixed and variable costs: one cost pool, single allocation base

Question 5

Dual rate method

Answer 5

Distinguishes bw variable and fixed costs: two cost pools, two allocation bases

Question 6

3 diff allocation bases

Answer 6

1. Budgeted oh rate and budgeted hrs
2. budgeted oh rate and actual hours
3. actual oh rate and actual hrs

Question 7

3 diff allocation bases

Answer 7

1. Budgeted oh rate and budgeted hrs
2. budgeted oh rate and actual hours
3. actual oh rate and actual hrs

Question 8

Advantages single rate

Answer 8

1. less costly
2. user departments have operational control over the charges their bear

Question 9

Disadvantages single rate

Answer 9

Operating department managers making decisions that are good for them, bad for company

Question 10

Advantages Dual rate method

Answer 10

1. Department managers are guided to make decisions that benefit each department AND organization as a whole
2. using budgeted usage to allocate FC helps user departments with short and long run planning: know costs in advance

Question 11

Disadvantages Dual rate method

Answer 11

1. diff to distinguish VC from FC
2. operating managers don‘t know costs of fixed support department costs since fixed costs are allocated to operating department based on budgeted rather than actual usage
3. allocating fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage

Question 12

Budgeted vs actual rates

Answer 12

Actual rates: uncertainty on user departments
Budgeted rates: motivate support managers to improve efficiency

Question 13

Budgeted vs actual usage

Answer 13

Actual usage: better since variable cost linked to usage
Budgeted usage: worse: no incentive to control consumption of support services

Question 14

Direct method

Answer 14

Only allocate support dpt costs to operating dpt (NOT to other support departments

Question 15

Step-down method

Answer 15

Allocate support dpt costs to operating dpt and other support dpt in sequential manner
- partially recognises mutual services among support dpt

Question 16

Reciprocal method

Answer 16

Allocates support dpt costs to operating dpt by fully recognizing mutual services bw support dpt

Question 17

Which method is most precise

Answer 17

Reciprocal method

Question 18

Common costs

Answer 18

Cost of operating facility, activity or cost object when its shared by several users

Question 19

Two methods to allocate common costs

Answer 19

Stand alone and incremental cost allocation

Question 20

Stand-alone method

Answer 20

Determines weight for costa location by considering users as separate entities: allocation percentages are calculated from whole and applied to common costs

Question 21

Incremental cost allocation

Answer 21

Ranks the according to which user is most responsible for common costs: sés ranking to allocate costs

Question 22

Steps incremental cost allocation

Answer 22

1. First user: highest costs: costs up to the costs of stand alone user
2. Second and more: additional costs that arises from two rather than one user

Question 23

CASB

Answer 23

Cost accounting standard board

Question 24

Revenue object

Answer 24

Anything for which separate measurement of revenue is desired

Question 25

Bundled product

Answer 25

Package of products

Question 26

Two methods to allocate revenue to bundled products

Answer 26

1. Stand-alone method
2. Incremental revenue method

Question 27

Stand alone method to allocate revenue to bundled products

Answer 27

Find weights to allocate revenues:
1. Selling price
2. Unit costs
3. Physical units

Question 28

Incremental revenue-allocation to allocate revenue of bundled products

Answer 28

Allocate costs according to ranking:
1. First ranked product = primary product
2. Second and more = incremental products

Question 29

Fixed cost allocation based on bgt rates and bgt usage

Answer 29

• bdgt usage as allocation base: user dpt receive lump sum fixed cost charge
• rates can be set on bgtd usage or practical capacity

Question 30

Fixed cost allocation based on bdgt rates and actual usage

Answer 30

Hello- if actual usage = bdgt usage, but less than practical capacity 100% of the dpt costs are allocated even though department had idle capacity

Question 31

Allocating bdgt fixed costs based on actual usage

Answer 31

• user dpt wont know fixed cost allocations until end of period

Question 32

Difference among three methods increase, as…

Answer 32

1) reciprocal allocation increase
2) difference across operating dpt‘s usage of support dpts increase