Ch. 16.1 Allocating support department costs using the single rate and dual rate methods

Question 1

department that directly adds value to a product or service
(ex. manufacturing departments where products are made)

Answer 1

operating department
or
production department

Question 2

department that provides the services that assist other internal departments in the company.
(ex. information systems, production control, materials management, and plant maintenance)

Answer 2

support department
or
service department

Question 3

2 questions asked when allocating the costs of a support department to operating departments or division

Answer 3

1.should fixed costs of support departments(salary of the department managers), be allocated to operating divisions
2.if fixed costs are allocated, should variable and fixed costs of the support department be allocated in the same way

Question 4

2 methods to to approach allocating support department costs

Answer 4

1. single rate method
2. dual rate method

Question 5

does not distinguish between fixed and variable costs. it allocated costs in each cost pool(support department) to cost objects(operating departments) using the same rate per unit of a single allocation base
which allocating support department costs is this?

Answer 5

single rate method

Question 6

separates support department costs into a variable cost pool and fixed cost pool, and allocates each pool using a different cost allocation base
which allocating support department costs is this?

Answer 6

dual rate method

Question 7

for both the single rate method and the dual rate method, managers can use a _______ rate or the ______ rate to allocate support department costs to operating departments

Answer 7

budgeted rate or the actual cost rate
(actual is not used)
(going to study budgeted)

Question 8

in the single rate method variable costs are assigned based oon the _____ variable cost per hour for _____ hours each department uses

Answer 8

• budgeted
• actual

Question 9

in the dual rate method variable costs are assigned the same as single rate but fixed costs are assigned based on _______ fixed costs per hour and _______ number of hours for each department

Answer 9

• budgeted
• budgeted

Question 10

under dual rate method since the fixed rate is is charged on the basis of budgeted usage, fixed costs are effectively allocated

Answer 10

in advance as a lump sum

Question 11

total costs assigned are different bc the single rate method allocates fixed costs based on ____ usage whereas the dual rate method allocates fixed costs based on ______ usage

Answer 11

• actual
• budgeted

Question 12

you can allocate on 2 based on 2 things

Answer 12

1. the demand for materials handling services
2. the supply of materials handling services

Question 13

when a company uses practical capacity to allocate costs, the single rate method allocates only the ______ fixed cost resources used by the machining and assembly departments

Answer 13

actual

Question 14

when a company uses practical capacity to allocated costs, the dual rate method allocates the _____ fixed cost resources to be used by the operating departments

Answer 14

budgeted

Question 15

we use practical capacity for demand or supply

Answer 15

supply

Question 16

focuses mangagements attention on managing unused capacity and avoids burdening the user departments with the cost of unused capacity

Answer 16

using practical capacity to allocate costs

Question 17

Advantages
- is less costly to implement
- it offers user departments some operational control over the charges they bear
single rate or dual rate

Answer 17

single rate

Question 18

Disadvantages
- may lead operating department managers to make suboptimal decisions that are in their own best interest but inefficient from the standpoint of the organization as a whole
single rate or dual rate

Answer 18

single rate

Question 19

Advantages
- guides department managers to make decisions that benefit both the organization as a whole and each department
single rate or dual rate
- allocating fixed costs based on budgeted usage helps user departments with both short-run and long-run planning because user departments know the costs allocated to them in advance
single rate or dual rate

Answer 19

dual rate

Question 20

Disadvantages
- requires managers to distinguish variable costs from fixed costs, which is often a challenging task
- does not measure the cost of fixed support department resources actuall used by operating departments because fixed costs are allocated based on budgeted rather than actual usage
- allocating fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate budgeted usage
single rate or dual rate

Answer 20

dual rate method