Question

1)

Managers trace _____ to service departments. Managers allocate ______ to service departments.

A) producing department costs; service department costs.

B) producing department costs; producing department costs.

C) direct costs; indirect costs.

D) direct costs; producing department costs.

2)

The allocation of fixed costs in service departments to user departments is based on _______.

A) actual capacity used in last period.

B) budgeted capacity available to user.

C) actual usage by user department.

D) actual usage by service development.

3)

When allocating fixed costs from service departments to production departments, managers should use ______ instead of _____.

A) capacity used; capacity available

B) capacity available; budgeted capacity

C) capacity used; budgeted capacity

D) capacity available; capacity used

4)

By-products differ from joint products because by- products have _____.

A) no joint costs before the split-off point

B) joint costs before the split-off point

C) significant sales value when compared to other products at the split-off point

D) insignificant sales value when compared to other products at the split-off point

Answer 1

01. (D) direct costs; producing department costs.

The direct method transfers the cost of a service department directly to the productive departments that rely on the services. The allocation is usually based upon some logical benchmark.

02. D) actual usage by service development.

fixed costs might be allocated based on an estimate of long-term usage by the production departments.

03. C) capacity used; budgeted capacity

Since user departments are charged for the services provided, they will monitor the performance of the service department. If the service can be obtained more cheaply externally, then the user departments will be likely to point this out to management. Knowing this, a manager of a service department will exert effort to maintain a competitive level of service.

04. D) insignificant sales value when compared to other products at the split-off point

By-Product are produced from the discarded material, i.e. scrap or waste of the main process. The split-off point is the stage, at which the by-products are separated from the main product. Economic value of by-product is lower than the main product.