AF 3112 Week 4 Assignment-Solution.pdf - AF 3112 MANAGEMENT ACCOUNTING 2 Week 4 exercises 15-1 Distinguish between the single-rate and the dual-rate

AF 3112 Week 4 Assignment-Solution.pdf - AF 3112 MANAGEMENT...

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1 AF 3112 MANAGEMENT ACCOUNTING 2 Week 4 exercises 15-1 Distinguish between the single-rate and the dual-rate methods. The single-rate (cost-allocation) method makes no distinction between fixed costs and variable costs in the cost pool. It allocates costs in each cost pool to cost objects using the same rate per unit of the single allocation base. The dual-rate (cost-allocation) method classifies costs in each cost pool into two pools—a variable-cost pool and a fixed-cost pool— with each pool using a different cost-allocation base. 15-3 How do budgeted cost rates motivate the support-department manager to improve efficiency? Budgeted cost rates motivate the manager of the support department to improve efficiency because the support department bears the risk of any unfavorable cost variances. 15-7 Distinguish among the three methods of allocating the costs of support departments to operating departments. The three methods differ in how they recognize reciprocal services among support departments: a. The direct (allocation) method ignores any services rendered by one support department to another; it allocates each support department’s costs directly to the operating departments. b. The step-down (allocation) method allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments. c. The reciprocal (allocation) method allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. 15-9 Distinguish between two methods of allocating common costs. The stand-alone cost-allocation method uses information pertaining to each user of a cost object as a separate entity to determine the cost-allocation weights. The incremental cost-allocation method ranks the individual users of a cost object in the order of users most responsible for the common costs and then uses this ranking to allocate costs among those users. The first-ranked user of the cost object is the primary user and is allocated costs up to the costs of the primary user as a stand-alone user. The second-ranked user is the first incremental user and is allocated the additional cost that arises from two users instead of only the primary user. The third-ranked user is the second incremental user and is allocated the additional cost that arises from three users instead of two users, and so on. 15-17 Single-rate method, budgeted versus actual costs and quantities. Chocolat Inc. is a producer of premium chocolate based in Palo Alto. The company has a separate division for each of its two products: dark chocolate and milk chocolate. Chocolat purchases ingredients
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2 from Wisconsin for its dark chocolate division and from Louisiana for its milk chocolate division. Both locations are the same distance from Chocolat’s Palo Alto plant.
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