Part II
1. Which of the following describes why companies assign the cost of service departments to
divisions, departments, or activities?
A. Each production department contains service departments, so the costs need to be assigned
to each department.
B. Divisions, departments, or activities use service departments to some extent, so the cost of
the service departments should be assigned accordingly.
C. If any division, department, or activity, has a loss, management can designate the unit a
service department, and the loss can be distributed to other divisions, departments, or
activities.
D. Service department costs should not be assigned to divisions, departments, or activities.
2. All of the following are goals that organizations generally work to accomplish in the
assignment of support department costs to production departments except:
A. The method(s) used to assign support department costs to production departments should be
relevant and useful to the types of decisions being made based on those costs.
B. The cost assignment needs to be transparent to all departments involved.
C. The cost assignment process should allocate the same amount of support department costs
to each production department.
D. Cost assignment systems are most effective when they establish accountability within the
organization.
3. If a manager is interested in partially accounting for services that support departments provide
to each other, which allocation method should be used?
A. The step-down method
B. The direct method
C. The net realizable value method
D. The reciprocal method
4. If a manager is interested in fully accounting for services that support departments provide to
each other, which allocation method should be used?
A. The direct method
B. The step-down method
C. The physical measure method
D. The reciprocal method
5. Product Producers, LLC (PP) manufactures a widget that is sold around the world. PP has a
Janitor support department and an HR support department with two production
departments—Production Dept. 1 and Production Dept. 2. Both of these support departments
provide services to Production Dept. 1 and Production Dept. 2. The support departments
provide janitorial and HR services to each other as well. Total quarterly costs for the Janitor
Dept. and HR Dept. are provided below. Janitor Dept. costs are assigned based on the
occupancy of square footage and HR Dept. costs are assigned using headcount of personnel.
Janitor Dept. HR Dept. Production Dept. 1 Production Dept. 2
Square feet
1,000
1,600
4,000
7,000
Headcount
8
10
50
70
$130,000
$250,000
Support dept. costs
What overhead costs are assigned to Production Dept. 1 and Production Dept. 2 using the reciprocal
method? In order for the solution to balance out with the original amount of support department cost,
DO NOT round intermediate calculations.
A. Production Dept. 1: $151,439.39; Production Dept. 2: $228,560.61
B. Production Dept. 1: $152,314.81; Production Dept. 2: $227,685.19
C. Production Dept. 1: $150,610.80; Production Dept. 2: $229,389.20
D. Production Dept. 1: $151,537.50; Production Dept. 2: $228,462.50
6. The HGF Company separates its activities into two operating departments and two support
departments. Support Department 1 had budgeted costs of $60,000 and Support Department
2 had budgeted costs of $45,000 during the month of March. HGF allocates the costs of each
support department based on service hours. The table here shows how many service hours
each support department provided to the two operating departments, to the other support
department, and to itself.
Support 1 Support 2 Operating 1 Operating 2 Total Service Hours Provided
Support 1
1,800
2,000
3,000
5,000
11,800
Support 2
300
100
900
1,800
3,100
If HGF uses the direct method to allocate support department costs, how much will be allocated to
Operating Department 1 and Operating Department 2, respectively, in March?
A. $37,000 and $68,000
B. $37,500 and $67,500
C. $37,194 and $67,806
D. $38,271 and $66,729
7.
A.
B.
C.
D.
Which of the following is not a reason to allocate support department costs?
To more accurately reflect the true cost of support departments
To encourage operating departments to use support departments in an efficient way
To encourage support departments to provide services in an efficient way
To more accurately reflect the true cost of operating departments
8. Product Producers, LLC (PP) manufactures a widget that is sold around the world. PP has a
Janitor support department and an HR support department with two production
departments—Production Dept. 1 and Production Dept. 2. Both of these support departments
provide services to Production Dept. 1 and Production Dept. 2. The support departments
provide janitorial and HR services to each other as well. Total quarterly costs for the Janitor
Dept. and HR Dept. are provided below. Janitor Dept. costs are assigned based on the
occupancy of square footage and HR Dept. costs are assigned using headcount of personnel.
Janitor Dept. HR Dept. Production Dept. 1 Production Dept. 2
Square feet
1,000
1,600
4,000
7,000
Headcount
8
10
50
70
$130,000
$250,000
Support dept. costs
What overhead costs are assigned to Production Dept. 1 and Production Dept. 2 using the direct
assignment method? In order for the solution to balance out with the original amount of support
department cost, DO NOT round intermediate calculations.
A. Production Dept. 1: $151,537.50; Production Dept. 2: $228,462.50
B. Production Dept. 1: $152,314.81; Production Dept. 2: $227,685.19
C. Production Dept. 1: $150,610.80; Production Dept. 2: $229,389.20
D. Production Dept. 1: $151,439.39; Production Dept. 2: $228,560.61
9. Product Producers, LLC (PP) manufactures a widget that is sold around the world. PP has a
Janitor support department and an HR support department with two production
departments—Production Dept. 1 and Production Dept. 2. Both of these support departments
provide services to Production Dept. 1 and Production Dept. 2. The support departments
provide janitorial and HR services to each other as well. Total quarterly costs for the Janitor
Dept. and HR Dept. are provided below. Janitor Dept. costs are assigned based on the
occupancy of square footage and HR Dept. costs are assigned using headcount of personnel.
Janitor Dept. HR Dept. Production Dept. 1 Production Dept. 2
Square feet
1,000
1,600
4,000
7,000
Headcount
8
10
50
70
$130,000
$250,000
Support dept. costs
What overhead costs are assigned to Production Dept. 1 and Production Dept. 2 using the step-down
method? Assume that HR Dept. costs will be allocated first in the step-down method process. In order
for the solution to balance out with the original amount of support department cost, DO NOT round
intermediate calculations.
A. Production Dept. 1: $150,610.80; Production Dept. 2: $229,389.20
B. Production Dept. 1: $151,439.39; Production Dept. 2: $228,560.61
C. Production Dept. 1: $152,314.81; Production Dept. 2: $227,685.19
D. Production Dept. 1: $151,537.50; Production Dept. 2: $228,462.50
10. The BVC Company separates its activities into two operating departments and two support
departments. Support Department 1 had budgeted costs of $90,000 and Support Department
2 had budgeted costs of $180,000 during the month of April. BVC allocates the costs of each
support department based on service hours. The table here shows how many service hours
each support department provided to the two operating departments, to the other support
department, and to itself.
Support 1 Support 2 Operating 1 Operating 2 Total Service Hours Provided
Support 1
20
25
27
48
120
Support 2
1,000
400
3,000
2,000
6,400
If BVC uses the step-down method starting with Support Department 1 to allocate support department
costs, how much will be allocated to Operating Department 1 and Operating Department 2,
respectively, in April?
A. $133,200 and $136,800
B. $145,800 and $124,200
C. $140,400 and $129,600
D. $139,461 and $130,539