ch16 - CHAPTER 16 SUPPORT ACTIVITY AND DUAL RATE...

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CHAPTER 16 SUPPORT ACTIVITY AND DUAL RATE ALLOCATIONS TRUE/FALSE 1. A line activity relates indirectly to producing services or products. LO1 – False A line activity directly relates to producing services or products. 2. In decentralized firms, it is likely that different managers oversee the activities connected with the different cost pools. LO1 – True 3. Cost allocation rates serve as the explicit “price” for the services line managers obtain from other line activities. LO1 – False Cost allocation rates serve as the implicit “price” for the services line managers obtain from other support departments. 4. Electrical engineering is an example of a line activity that is fully traceable to contracts undertaken at a Design Specialist Consulting Firm designing a multi-story office complex. LO1 – True 5. The purchasing department is an example of a support activity for a manufacturing company. LO1 – True 6. The reciprocal method of allocating support activity costs is conceptually the most appealing method because it takes into account all of the reciprocity in consumption. LO2 – True 7. Under the direct method of allocating support activity costs, any consumption by other support departments are allocated to both support and line activities. LO2 – False Under the direct method of allocating support activity costs, any consumption by other support departments is ignored. 8. The step-down method of allocating support activity costs begins by rank-ordering support activity cost pools according to some criterion. LO2 – True 9. The step-down method of allocating support activity costs is also referred to as the rank-ordering method. LO2 – False The step-down method of allocating support activity costs is also referred to as the sequential method. 10. A key step in performing a step-down allocation is to rank the line cost pools according to an absolute criterion. LO2 – False A key step in performing a step-down allocation is to rank the support cost pools according to some criterion. However, there is no absolute criterion. 16-1
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Balakrishnan Managerial Accounting 11. All three methods of allocating support activity costs (direct, step-down, reciprocal) employ a single cost driver to allocate costs. LO3 – True 12. The direct and step-down methods of allocating support activity costs differ from the reciprocal method in that the reciprocal method uses a dual-rate allocation. LO3 – False All three methods employ a single cost driver to allocate costs. 13. One answer to the problem of using a single cost driver to allocate support activity costs is to use a dual-rate allocation. LO3 – True. 14. The cost driver used to allocate costs of support activities should bear an economic relation to the revenue generated. LO3 – False
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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ch16 - CHAPTER 16 SUPPORT ACTIVITY AND DUAL RATE...

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