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Business

Accounting

Distinguish among the three methods of allocating the costs of support departments to operating departments.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 4E

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Distinguish among the three methods of allocating the costs of support departments to operating departments.

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Which method of allocating support department costs is most accurate of the three methods.
Compare and explain differences in the support-department costs allocated to eachproduction department.
What are support departments, and why are their costs allocated to other departments? What process is used to allocate support department costs?
Give examples of allocation bases used to allocate support-department cost pools to operating departments.
How does management determine the order in which support department costs are allocated under the sequential method?
When using the sequential distribution method of distributing service department costs, if a service department receives services from other service departments, will those costs be allocated back to it even though it was the first service department distributed?
Which of the following principles should be applied when the step method of allocating service department costs is used? The sequence of allocation among departments should be randomly selected. The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest. The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest. All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected.
Explain briefly the main differences between the direct, step-down, and reciprocal-services methods of service department cost allocation.
Assigning indirect costs to departments is completed by ________.
Which of the following is the most difficult but most accurate of the commonly used methods for allocating support department costs to production departments? Oa. reciprocal services method Ob. direct method Oc. activity-based management method Od. sequential method
What are the differences between single and dual rate allocation? Explain with suitable examples. b) Provide a numerical example for single rate allocation and dual rate allocation and explain the process of allocating support department costs to the operating department, assuming that: The company has two support departments “S1 & S2” and two operating departments “O1 & O2.” The company use the direct method to allocate support department costs. Note: You are required to provide numerical examples assuming the values of your own and they should not be copied from any sources.
Which of the following methods recognizes some (but not all) of the services that occur between service departments? Indirect method. Step-down method. Reciprocal-services method. Dual-cost allocation method. Direct method.