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True / False Questions
1. The human resource department in a manufacturing company would be considered a
service department.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
2. Examples of user departments include production or marketing departments, as well as
other service departments.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 1
3. It is possible for a service department to be a final cost center in a merchandising
organization.
FALSE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
11-1
Chapter 011 Service Department and Joint Cost Allocation
4. One reason to allocate service department costs to user departments is to encourage the user
departments to monitor the service department costs.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 1
11-2
Chapter 011 Service Department and Joint Cost Allocation
5. The direct method allocates costs directly to intermediate cost centers, ignoring final cost
centers.
FALSE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
6. The direct method makes no cost allocations between or among service departments.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
7. An organization with two service departments, but only one user department, does not need
to allocate its service department costs.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
8. The selection of an allocation base in the direct method is easier than the selection of an
allocation base in the step method.
FALSE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-3
Chapter 011 Service Department and Joint Cost Allocation
9. Once an allocation is made from a service department using the direct method, no further
allocations are made back to that department.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
10. The step method recognizes that one service department can provide services to other
service departments.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
11. The first service department to allocate its costs using the step method is the one that
provides the smallest portion of its services to other service departments.
FALSE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
12. The last service department to allocate its costs using the step method is the one that
provides the smallest portion of its services to other service departments.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
11-4
Chapter 011 Service Department and Joint Cost Allocation
13. The step method allocates some, but not all, service department costs to other service
departments.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
14. Once an allocation is made from a service department using the step method, no further
allocations are made back to that department.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
15. One advantage of the step method is that all reciprocal services are recognized between
service departments.
FALSE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
16. One advantage of the reciprocal method is that all services provided by any service
department are recognized.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 4
11-5
Chapter 011 Service Department and Joint Cost Allocation
17. With the reciprocal method, the total service department costs less the direct costs of the
service department equals the cost allocated to the service department.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
18. The reciprocal method uses a single cost equation for each service department in the
organization.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
19. The simultaneous equation method can be used for both the step method and the
reciprocal method.
FALSE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 4
20. One potential disadvantage of the reciprocal method is it could overstate the cost of
running the organization's service departments.
FALSE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
11-6
Chapter 011 Service Department and Joint Cost Allocation
42. With the reciprocal method, each department's costs are set out in an equation where total
costs equal the sum of the direct department costs and any costs allocated to the department.
TRUE
AACSB: Analytic
Difficulty: Simple
Learning Objective: 10
43. If no services are provided to other service departments, all three allocation methods (i.e.,
direct, step, and reciprocal) allocate the same total dollars to the user departments.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 10
44. The use of a spreadsheet to allocate service department costs requires the series of
equations for the total cost of each department to be expressed in matrix form.
TRUE
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 10
11-7
Chapter 011 Service Department and Joint Cost Allocation
Multiple Choice Questions
45. Which of the following is the most practical reason for allocating service department costs
to user departments?
a. To ascertain profitability of user departments.
b. To evaluate performance of managers and divisions.
C. To make user departments aware that services are costly.
d. To provide the best possible service to users.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
46. Service department costs are
a. generally treated as period costs rather than product costs.
b. reported as selling and administrative expenses on the income statement.
C. eventually applied by the user departments to the units produced.
d. seldom found in manufacturing organizations.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 1
11-8
Chapter 011 Service Department and Joint Cost Allocation
47. A management purpose for allocating joint costs of a processing center to the various
products produced is to
A. establish inventory values for unsold units.
b. record accurate cost of sales by product line.
c. compute total processing cost variances by product.
d. report correct standard product costs for comparative analysis.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
11-9
Chapter 011 Service Department and Joint Cost Allocation
48. Which of the following service departments would use space occupied (square footage) to
allocate its costs to user departments?
a. Material Handling
b. Cafeteria
C. Custodial Services
d. Cost Accounting
e. Engineering
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 1
49. Which of the following departments is not a service department in a typical manufacturing
company?
A. Assembly
b. Accounting
c. Human resources
d. Information processing
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 5
50. Criteria for selecting allocation bases should not include
a. direct, traceable benefits from the service.
b. the extent of facilities provided.
c. the ease of making an allocation.
D. sales dollars generated during the period.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-10
Chapter 011 Service Department and Joint Cost Allocation
51. Which of the following service department cost allocation methods is most widely used by
manufacturing companies?
a. reciprocal method
B. direct method
c. step method
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
52. Which of the following statements is (are) false regarding the direct method of allocating
service department costs?
(A) The selection of an allocation base in the direct method is easier than the selection of an
allocation base in the step method.
(B) Once an allocation is made from a service department using the direct method, no further
allocations are made back to that department.
A. Only A is false.
b. Only B is false.
c. Neither A nor B is false
d. Both A and B are false.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
11-11
Chapter 011 Service Department and Joint Cost Allocation
53. Which of the following methods provides no data for service departments to monitor each
other's costs?
A. Direct method
b. Reciprocal method
c. Step method
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
11-12
Chapter 011 Service Department and Joint Cost Allocation
54. If two service departments service the same number of departments, which service
department's costs are allocated first when using the step method?
A. The service department that provides the most service to other service departments.
b. The service department that provides the most service to the user departments.
c. The service department with the least cost.
d. The service department that provides the least service to other service departments.
e. The service department that provides the least service to the user departments.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
55. Which of the following is a weakness of the step method of service cost allocations?
a. Some user departments are ignored.
b. All interdepartmental services are ignored.
c. All intradepartmental services are ignored.
D. The order of service department allocation has to be determined.
e. Computations are more complex than the reciprocal method.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
11-13
Chapter 011 Service Department and Joint Cost Allocation
56. LaCrescent University has 20 departments. Two of its best departments are the (1)
College of UBW (Underwater Basket Weaving) and (2) Testing Services. The College of
UBW attempts to teach students the difficult, but useful, skill of weaving baskets underwater.
Testing Services grades examinations for professors. How would these two departments be
classified?
a.
B.
c.
d.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
11-14
Chapter 011 Service Department and Joint Cost Allocation
57. The most accurate method for allocating service department costs is the
A. reciprocal method.
b. step method.
c. direct method.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 4
58. Which of the following cost allocation methods charges service department costs back to a
service department after its costs have been allocated?
a.
B.
c.
d.
AACSB: Analytic
Difficulty: Complex
Learning Objective: 4
11-15
Chapter 011 Service Department and Joint Cost Allocation
75. Oaks Company maintains a cafeteria for its employees. For June, food costs were
budgeted at $48 per employee, based on a budgeted level of 1,000 employees in producing
departments. During the month, an average of 1,100 employees worked in producing
departments. The cafeteria's total food costs for the month came to $57,750. How much food
cost should be allocated to producing departments at the end of the month?
a. $57,750
b. $52,500
c. $48,000
D. $52,800
e. Some other answer _______________.
$48(1,100) = $52,800
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
11-16
Chapter 011 Service Department and Joint Cost Allocation
76. Bagley Company has two service departments and two producing departments. Square
footage of space occupied by each department follows:
The department costs of Custodial Services are allocated on a basis of square footage of
space. If these costs are budgeted at $38,000 during a given period, the amount of cost
allocated to General Administration under the direct method would be
a. $15,200.
b. $ 7,125.
c. $ 6,000.
d. $ 5,700.
E. Some other answer _______$0______.
$0. There are no allocations between service departments when using the direct method.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-17
Chapter 011 Service Department and Joint Cost Allocation
77. Castle Company has two service departments and two producing departments. The
number of employees in each department is
The department costs of the Personnel Department are allocated on a basis of the number of
employees. If these costs are budgeted at $37,125 during a given period, the amount of cost
allocated to Department B under the direct method would be
a. $0.
b. $17,187.50.
c. $16,875.00.
D. $18,021.84.
e. Some other answer _______________.
[250/(265 + 250)] $37,125 = $18,021.84
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
11-18
Chapter 011 Service Department and Joint Cost Allocation
Cincinnati Million, Inc. operates two user divisions as separate cost objects. To determine
the costs of each division, the company allocates common costs to the divisions. During the
past month, the following common costs were incurred:
The following information is available concerning various activity measures and service
usages by each of the divisions:
78. Using the most appropriate allocation bases, what are the total common costs allocated to
Division A?
a. $293,214
b. $390,187
c. $398,453
D. $514,214
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Complex
Learning Objective: 2
11-19
Chapter 011 Service Department and Joint Cost Allocation
79. If common computer service costs are allocated using computer time as the only
allocation basis, what is the computer cost allocated to Division B?
A. $136,190
b. $137,647
c. $144,444
d. $173,333
e. Some other answer _______________.
[$260,000 (220/420)] = $136,190
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
80. Using the most appropriate allocation basis, what is the personnel cost allocated to
Division A?
a. $ 58,143
B. $ 74,643
c. $ 76,463
d. $110,000
e. Some other answer ________________.
[$110,000 ($380,000/560,000)] = $74,643
AACSB: Analytic
Difficulty: Simple
Learning Objective: 2
11-20
Chapter 011 Service Department and Joint Cost Allocation
81. If all common costs are allocated using operating profit as the allocation basis, what is the
total cost allocated to Division B?
A. $ 457,286
b. $ 512,714
c. $ 555,000
d. $1,087,576
e. Some other answer _______________.
$970,000 ($495,000/1,050,000) = $457,286
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
82. If dual rates are used to allocate computer service costs (fixed cost on the basis of storage,
variable cost on the basis of time), what will be the computer cost allocated to Division A?
a. $113,159
b. $221,000
C. $239,571
d. $123,810
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-21
Chapter 011 Service Department and Joint Cost Allocation
83. Castle Company has two service departments and two user departments. The number of
employees in each department is
The fixed costs of the Personnel Department are allocated on a basis of the number of
employees. If these costs are budgeted at $37,125 during a given period, the amount of cost
allocated to the Cafeteria under the step method would be
a. $0.
B. $1,718.75.
c. $1,687.50.
d. $1,802.18.
e. some other answer _______________.
[25/(25 + 265 + 250)] $37,125 = $1,718.75
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
11-22
Chapter 011 Service Department and Joint Cost Allocation
The Emery Construction Company occupies 85,000 square feet for construction of mobile
homes. There are two manufacturing departments, finishing and assembly, and four service
departments labeled S1, S2, S3 and S4. Information relevant to Emery is as follows:
Rent paid for the area used is $720,000
84. How much rent is allocable to the assembly department using the direct method of
allocation?
A. $420,000
b. $332,500
c. $300,000
d. $252,000
e. Some other answer _______________.
[29,750/(21,250 + 29,750)] $720,000 = $420,000
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-23
Chapter 011 Service Department and Joint Cost Allocation
85. How much rent would be charged to S4 using the step method of allocation and a S3S4
S1S2 sequence for the allocations?
a. $36,000
B. $40,000
c. $54,000
d. $90,000
e. Some other answer _______________.
(4,250/76,500) $720,000 = $40,000
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
11-24
Chapter 011 Service Department and Joint Cost Allocation
Computer Complex, Inc. has two main services: (1) time on a timeshared computer system,
and (2) proprietary computer programs. Computer time is provided by the operation
department (Op) and programs are written by the programming department (P)
The percentage of each service used by each department for a typical period is:
In a typical period, the operation department spends $4,500 and the programming department
spends $2,500.
86. Under the step method (Op first), what is the cost of the computer time and the computer
programs for sale?
a.
B.
c.
d.
e.
Time = .70 ($4,500) = $3,150
Programs = $2,500 + .30($4,500) = $3,850
AACSB: Analytic
Difficulty: Complex
Learning Objective: 3
11-25
Chapter 011 Service Department and Joint Cost Allocation
87. Under the reciprocal method what is the algebraic solution to the cost allocation problem?
A. Op = 4,500 + .40 P; P = 2,500 + .30 Op.
b. Op = 4,500 + .70 P; P = 2,500 + .60 Op.
c. Op = 2,500 + .40 P; P = 4,500 + .30 Op.
d. Op = 2,500 + .70 P; P = 4,500 + .60 Op.
e. Some other answer ________________________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
The RAH Manufacturing Company has two service departments: Maintenance (S1) and
Accounting (S2). The Maintenance Department's costs of $300,000 are allocated on the basis
of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis
of the number of employees within a specific department. The direct departmental costs for A
and B are $300,000 and $500,000, respectively.
11-26
Chapter 011 Service Department and Joint Cost Allocation
88. What is the Maintenance Department's cost allocated to Department A using the direct
method?
a. $ 92,000
b. $230,000
C. $276,000
d. $386,400
e. some other answer _______________.
[$300,000/(2,300 + 200)] 2,300 = $276,000
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-27
Chapter 011 Service Department and Joint Cost Allocation
89. What is the Accounting Department's cost allocated to Department B using the direct
method?
A. $ 40,000
b. $ 80,000
c. $ 20,000
d. $ 10,000
e. some other answer _______________.
[$120,000/(8 + 4)] 4 = $40,000
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
90. What is the Maintenance Department's cost allocated to Department B using the step
method and assuming the service department providing the highest percentage of support to
the other departments is allocated first?
a. $276,000
b. $230,000
C. $322,000
d. $23,809.50
e. some other answer ______________.
Maintenance Department: 480/2520 = 19.1%
Accounting Department: 2/14 = 7.1%
[$300,000/(20 + 2,300 + 200)] 200 = $23,809.50
AACSB: Analytic
Difficulty: Complex
Learning Objective: 3
11-28
Chapter 011 Service Department and Joint Cost Allocation
91. What is the cost of the Accounting Department's cost allocated to Department A using the
step method and assuming the Maintenance Department's costs are allocated first?
a. $81,333
B. $81,587
c. $80,000
d. $68,571
e. some other answer _______________.
($300,000/2,520) 20 = $2,381
[($120,000 + 2,381)/(8 + 4)] 8 = $81,587
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-29
Chapter 011 Service Department and Joint Cost Allocation
Harry Dishman owns and operates Harry's Septic Service and Legal Advice. Harry's two
revenue generating (production) operations are supported by two service departments:
Clerical and Janitorial. Costs in the service departments are allocated in the following order
using the designated allocation bases:
Clerical:
Variable cost expected number of work orders processed
Fixed cost longrun average number of work orders processed
Janitorial:
Variable cost labor hours
Fixed cost square footage of space occupied
Average and expected activity levels for next month (June) are as follows:
Expected costs in the service departments for June are as follows:
11-30
Chapter 011 Service Department and Joint Cost Allocation
92. Under the direct method of allocation, how much service cost should be allocated to the
Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs
and round all calculations to the nearest whole dollar.)
a. $12,689
B. $13,100
c. $13,620
d. $15,596
e. $16,070
AACSB: Analytic
Difficulty: Complex
Learning Objective: 3
93. Under the step method of allocation, what is the total amount of service cost allocated to
the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)
a. $ 6,231
B. $ 7,720
c. $ 8,640
d. $ 9,330
e. $ 9,804
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 2
11-31
Chapter 011 Service Department and Joint Cost Allocation
94. What is the amount of the fixed janitorial costs to be allocated to the revenue generating
departments under the step method of cost allocation? (Round all calculations to the nearest
whole dollar.)
a. $ 800.
b. $2,000.
C. $2,200.
d. $2,950.
e. Some other answer _______________.
$800 + [(20/120) $8,400] = $2,200
If an instructor teaches that all allocated costs should be treated as "fixed" in the receiving
department, the answer is D, which includes [(5/80) $12,000].
AACSB: Analytic
Difficulty: Complex
Learning Objective: 3
The following information relates to Ray Corporation for the past accounting period.
Proportion of service by A to:
Proportion of service by B to:
11-32
Chapter 011 Service Department and Joint Cost Allocation
95. Using the simultaneous solution method, department A's cost allocated to department C is
a. $48,000
b. $58,800
C. $60,619
d. $98,000
e. Some other answer _______________.
A = $80,000 + .30B; B = $60,000 + .10A
A = $101,031; B = $70,103
C's portion of A = .60 $101,031 = $60,619
AACSB: Analytic
Difficulty: Complex
Learning Objective: 4
96. Using the simultaneous solution method, department B's cost allocated to department C is
a. $29,021
B. $14,021
c. $13,192
d. $ 7,794
e. Some other answer .
A = $80,000 + .30B; B = $60,000 + .10A
A = $101,031; B = $70,103
C's portion of A = .20 $70,103 = $14,021
AACSB: Analytic
Difficulty: Complex
Learning Objective: 4
11-33
Chapter 011 Service Department and Joint Cost Allocation
The following set up is a system of simultaneous linear equations to allocate costs using
reciprocal method. Matrix algebra is not required.
The following costs were incurred in three operating departments and three service
departments in Reality Company.
Use of services by other departments is as follows.
97. The equation for department P1 (subassemblies) is
a. P1 = $550,000 + .25P2 + .20P3 + .15S2 + 10S3.
B. P1 = $550,000 + .30S1 + .50S2 + .20S3.
c. P1 = .30S1 + .50S2 + 20S3.
d. P1 = .30S1 + .50S.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
11-34
Chapter 011 Service Department and Joint Cost Allocation
98. The equation for department P2 (final assembly) is
a. P2 = .25S1 + .50S2 + .30S3.
b. P2 = $775,000 + .25P2 + .20P3 + .15S2 + .10S3.
c. P2 = $775,000 + .30S1 + .50S2 + .20S3.
D. P2 = $775,000 + .25S1 + .50S2 + .30S3.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
99. The equation for department P3 (marketing) is
A. P3 = $285,000 + .20S1 + .20S3.
b. P3 = $285,000 + .20S1 + .60S2 + .20S3.
c. P3 = $285,000 + .20S1 + .20S2 + .60S3.
d. P3 = $285,000 + .50S1 + .50S3.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
100. The equation for department S1 (building occupancy) is
a. S1 = .10S3.
b. S1 = $85,000 + 1.00S3.
C. S1 = $85,000 + .10S3.
d. S1 = $85,000 + .90S2 + .10S3.
e. Some other answer ______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
11-35
Chapter 011 Service Department and Joint Cost Allocation
101. The equation for department S2 (research and development) is
a. S2 = $120,000 + .15S1 + .65S2 + .20S3.
b. S2 = .15S1 + 20S3.
C. S2 = $120,000 + .15S1 + .20S3.
d. S2 = $120,000 + .40S1 + .60S3.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
102. The equation for department S3 (supervision) is
a. S3 = $45,000 + .90S1 + .10S2.
B. S3 = $45,000 + .10S1.
c. S3 = $45,000 + 1.00S1.
d. S3 = .10S1.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 4
11-36
Chapter 011 Service Department and Joint Cost Allocation
103. Products X, Y, and Z are produced from the same process at a cost of $5,200. Five
thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X
$2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 50 units. What is the
value of the ending inventory using the market (or sales) value method of allocating joint
costs?
a. $21.67.
b. $31.20.
C. $40.00.
d. $42.00.
e. Some other answer _______________.
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 6
11-37
Chapter 011 Service Department and Joint Cost Allocation
127. Allocation of service department costs to production departments is necessary to: (CMA
adapted, 12/90)
A. control costs.
b. coordinate production activity.
c. determine overhead rates.
d. maximize efficiency.
e. measure utilization of plant capacity.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
128. When allocating service department costs to production departments, the method that
does not consider different cost behavior patterns is the (CMA adapted, 12/95)
a. step method.
b. reciprocal method.
c. direct method.
D. singlerate method.
e. dualrate method.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 1
11-38
Chapter 011 Service Department and Joint Cost Allocation
129. There are several methods for allocating service department costs to production
departments. The method which recognizes service provided by one service department to
another but does not recognize reciprocal interdepartmental service is called: (CMA adapted,
12/90)
a. direct method.
b. variable method.
c. linear method.
d. reciprocal method.
E. stepdown method.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
130. Because this allocation method recognizes that service departments often provide each
other with interdepartmental service, it is theoretically considered to be the most accurate
method for allocating service department costs to production departments. This method is:
(CMA adapted, 12/95)
a. direct method.
b. variable method.
c. linear method.
D. reciprocal method.
e. stepdown method.
AACSB: Analytic
Difficulty: Simple
Learning Objective: 4
11-39
Chapter 011 Service Department and Joint Cost Allocation
Essay Questions
Computer Information Services is a computer software consulting company. Its three major
functional areas are computer programming, information systems consulting, and software
training. Carol Birch, a pricing analyst in the Accounting Department, has been asked to
develop total costs for the functional areas. These costs will be used as a guide in pricing a
new contract. In computing these costs, Birch is considering three different methods of
allocating overhead coststhe direct method, the step method, and the reciprocal method.
Birch assembled the following data on overhead from its two service departments, the
Information Systems Department and the Facilities Department.
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Chapter 011 Service Department and Joint Cost Allocation
137. Required: Allocate the service department costs to the user departments using the direct
method.
S1 = Information System
S2 = Facilities
P1 = Computer Programming
P2 = Consulting
P3 = Training
AACSB: Analytic
Difficulty: Simple
Learning Objective: 3
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Chapter 011 Service Department and Joint Cost Allocation
138. Required: Allocate the service department costs to the user departments using the step
method.
S1 = Information System
S2 = Facilities
P1 = Computer Programming
P2 = Consulting
P3 = Training
AACSB: Analytic
Difficulty: Moderate
Learning Objective: 3
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Chapter 011 Service Department and Joint Cost Allocation
139. Required: Allocate the service department costs to the user departments using the
reciprocal method:
S1 = Information System; S2 = Facilities
P1 = Computer Programming; P2 = Consulting; P3 = Training
S1 = $50,000 + [(200/2,000) S2]
S2 = $25,000 + [(400/3,000) S1]
S1 = $53,209; S2 = $32,095
AACSB: Analytic
Difficulty: Complex
Learning Objective: 4
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Chapter 011 Service Department and Joint Cost Allocation
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