ch15 hw solutions - CHAPTER 15 ALLOCATION OF...

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CHAPTER 15ALLOCATION OF SUPPORT-DEPARTMENT COSTS,COMMON COSTS, AND REVENUES15-1The single-rate (cost-allocation) method makes no distinction between fixed costs andvariable costs in the cost pool. It allocates costs in each cost pool to cost objects using the samerate per unit of the single allocation base. The dual-rate (cost-allocation) method classifies costsin each cost pool into two pools—a variable-cost pool and a fixed-cost pool—with each poolusing a different cost-allocation base.15.2The dual-rate method provides information to division managers about cost behavior.Knowing how fixed costs and variable costs behave differently is useful in decision making.15.3Budgeted cost rates motivate the manager of the supplier department to improveefficiency because the supplier department bears the risk of any unfavorable cost variances.15-4Examples of bases used to allocate support department cost pools to operatingdepartments include the number of employees, square feet of space, number of hours, andmachine-hours.15-5The use of budgeted indirect cost allocation rates rather than actual indirect rates hasseveral attractive features to the manager of a user department:a.the user knows the costs in advance and can factor them into ongoing operatingchoices,b.the cost allocated to a particular user department does not depend on the amountof resources used by other user departments, andc.inefficiencies at the department providing the service do not affect the costs allocatedto the user department.15.6Disagree. Allocating costs on “the basis of estimated long-run use by user departmentmanagers” means department managers can lower their cost allocations by deliberatelyunderestimating their long-run use (assuming all other managers do not similarlyunderestimate their usage).15-7The three methods differ in how they recognize reciprocal services among supportdepartments:a.The direct (allocation) method ignores any services rendered by one supportdepartment to another; it allocates each support department’s costs directly to theoperating departments.b.The step-down (allocation) method allocates support-department costs to othersupport departments and to operating departments in a sequential manner thatpartially recognizes the mutual services provided among all support departments.c.The reciprocal (allocation) method allocates support-department costs to operatingdepartments by fully recognizing the mutual services provided among all supportdepartments.
15-1

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Term
Spring
Professor
Stangota

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