Discuss two different criteria Mr. Smith can use to determine the sequence for allocating support department costs using the step-down method. LabAid Ltd provides radiological services. Despite the variety of patients seen at LabAid, theradiological services involve only two operating departments (Daily Patient and Radiology) and twoservice departments (Administrative Services and Maintenance Services). For the first quarter of2022, LabAid incurs the following costs in its four departments:DepartmentOverhead costsDaily Patient£350,000Radiology£300,000Administrative Services£50,000Maintenance Services£55,000The actual level of support relationships among the four departments for the first quarter of 2022was:Used byAdministrative MaintenanceDailyServicesServicesPatientRadiologySuppliedAdministrative25%40%35%ServicesbyMaintenance Services10%30%60%The Administrative Services support percentages are based on number of employees. TheMaintenance Services support percentages are based on total labour hours.

Cost allocation is a process of assigning or allocating indirect cost to each and every unit using a…

Answered: Discuss two different criteria Mr.…

Discuss two different criteria Mr. Smith can use to determine the sequence for allocating support department costs using the step-down method

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Cost accounting provides management with a variety of cost classifications that can be used for…

A: The concept underlying the above question revolves around the importance of cost classifications in…

Q: The controller has asked you do determine what method you think would be the best approach to…

A: Weighted Average Cost Method: According to accounting principles, the Weighted Average Cost (WAC)…

Q: What type of cost drivers do modern costing systems use and how does it differ from the cost drivers…

A: Cost Driver Business activities are influenced by a cost driver . Cost drivers are the factors…

Q: Under activity-based costing, selling and administrative expenses may be allocated using which of…

A: Budgeted activity cost is the budgeted cost prepared by the company that would be incurred on…

Q: There are two (2) costing systems (techniques) that organizations use to budget for the…

A: The costing system is used for the valuation of production cost which helps in determining the sales…

Q: What is conceptually the most defensible method for allocating support-department costs? Why?

A: Cost Allocation Method: The cost allocation method is the method by which the costs to be assigned…

Q: Is it true that with the use of the algebraic method, each department’s costs are set out in an…

A: Direct costs are costs that can be credited to a specific department. The company knows what…

Q: Allocate the support department costs to the production departments using the direct method.

A: Solution:- Janitorial department total cost = $310,000 Total square of production department…

Q: Differentiate between the mechanisms of an “actual costing” budgetary system against a “normal…

A: Budgetary system is the system which is applied by the company in order to be on track and within…

Q: Which method of allocating support department cost is more accurate method

A: Accurate method of allocating support department cost is "Reciprocal method" because under this…

Q: Bramble Corp.’s balance sheet at December 31, 2016, included the following. Note receivable…

A: Solution- S no Particulars Amount DR Amount CR 1 Accounts receivable------------------DR…

Q: What are the differences between single and dual rate allocation? Explain with suitable examples.…

A: Single rate allocation and dual rate allocation are two methods used to allocate support department…

Q: If two support departments service the same number of departments, which support department's costs…

A: Departmental overhead rate is calculated by adding the allocated service costs to the overhead costs…

Q: Which of the following statements about ABC is not correct? answer choices When forming activity…

A: Answer:- Activity-based costing (ABC)= Activity-based costing (ABC) is a kind of method of costing…

Q: how can we use step down cost allocation for ? From service center to mission center

A: Answer

Q: Which of the following describe the reciprocal method for cost allocation: Select one: O a.…

A: Cost allocation is very important in case there are two types of departments are there. One is…

Q: What are support departments, and why are their costs allocated to other departments? What process…

A: Support departments are those departments which helps or provides support to other operation…

Q: 2) Refining a cost system requires: A) classifying as many costs as indirect costs as is feasible B)…

A: Refining a cost system means making some modifications to simple costing system that includes direct…

Q: 2. Sunshine Company sells custom made surf boards in California. The finance manager has supplied…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: Number of employees is a suitable basis of apportionment for the following costs EXCEPT:…

A: A firm incurs various types of cost in the process of manufacturing of goods and services. The types…

Q: a predetermined application rate for conversion costs is based on actual conversion costs divided by…

A: Conversion costs are costs that are incurred for converting raw materials of the business into…

Q: Assigning indirect costs to departments is completed by ________.

A: Indirect costs are those costs that are not directly related with the production or selling. These…

Q: Which of the four costing methods is best for an organization to use? Why?

A: The costing methods are the methods that are used by companies to determine the true cost related to…

Q: Which among the following alternative methods of costing is related to the best use of physical…

A: Since you have asked multiple questions, we will answer the first full question for you. Please…

Q: Which of the following is/ are considered as the uses of standard costing? Statement 1:…

A: Introduction:- Standard Costing:- The practice of estimating the cost of a production process is…

Q: Compare and explain differences in the support-department costs allocated to each production…

A: Cost allocation is the process in cost accounting that deals with identifying the cost centers or…

Q: Describe at a high level the various cost categories and expenditures.

A: Expenditures refer to money spent on goods, services, or investments. It is the amount of money used…

Q: Specify the cost behavior with the level of activity in an organization. Relate it with ABC costing…

A: Cost behavior is an indication of how a cost will change with the number of units for the activity.

Q: Using Direct Method, how much service costs will be allocated to P1? 2. Using Direct Method, how…

A: Honor Code- Since you have posted a question with multiple sub-parts, we will solve the first three…

Q: In the first stage of ABC, a cost driver is selected for each activity cost pool. True or False?

A: ABC i.e. Activity Based Costing is a type of costing method used by companies to assign overhead and…

Q: There are four steps in the two-stage cost allocation process using ABC. Which of the following not…

A: Activity-Based costing system: Activity-based costing is a costing method that identifies activities…

Q: Cost allocation is a general term that refers to identifying accumulated costs with, or tracing…

A: Answer:- Cost allocation:- Identification, agglomeration, and assignment of costs to cost objects…

Q: True or 2. Reasons for using standard costing include: A) Comparing projected costs against actual…

A: Part 2: Explanation:Step 1: Comparing projected costs against actual costsStandard costing provides…

Q: Indicate whether the following statement is true or false, then support your view. By using a…

A: Traditional method of costing is the method of allocating overheads based on the single cost driver.…

Q: Cost allocation is a general term that refers to identifying accumulated costs with, or tracing…

A: Answer:- Cost allocation:- Identification, agglomeration, and assignment of costs to cost objects…

Q: The direct method as used is one method that can be used to re-assign service department cost.…

A: Overhead refers to continuing business expenses that are not directly related to the production of a…

Q: Describe the contribution margin ratio in layperson’s terms.

A: Definition: Contribution margin ratio: The contribution margin ratio shows the amount of difference…

Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Discuss two different criteria Mr. Smith can use to determine the sequence for allocating support department costs using the step-down method.

LabAid Ltd provides radiological services. Despite the variety of patients seen at LabAid, the
radiological services involve only two operating departments (Daily Patient and Radiology) and two
service departments (Administrative Services and Maintenance Services). For the first quarter of
2022, LabAid incurs the following costs in its four departments:
Department
Overhead costs
Daily Patient
£350,000
Radiology
£300,000
Administrative Services
£50,000
Maintenance Services
£55,000
The actual level of support relationships among the four departments for the first quarter of 2022
was:
Used by
Administrative Maintenance
Daily
Services
Services
Patient
Radiology
Supplied
Administrative
25%
40%
35%
Services
by
Maintenance Services
10%
30%
60%
The Administrative Services support percentages are based on number of employees. The
Maintenance Services support percentages are based on total labour hours.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Classify the following fixed costs as normally being either committed or discretionary:f. Management development and training.
devrat
Discuss the components of the Contribution Margin Income Statement, how does management use this in the decision making process?
How to allocate indirect costs to multiple departments using an ABC cost driver?
In a two-stage activity-based costing model, stage one involves Select one: O O A. assigning activity costs to cost objects. B. assigning indirect resource costs to activity pools. C. measuring the various indirect resource costs and determining resource drivers. D. assigning direct costs to cost objects.
Distinguish among the three methods of allocating the costs of support departments to operating departments.
4) Design ABC system for EON and Brothers (discuss steps) 5) What are the Costs per unit of Alfa and Beta under traditional and ABC costing systems?What would be the prices of Alpha and Beta traditional and ABC costing systems? Comparethe costs and prices calculated in the two systems (Calculations should be shown in theappendix) and for analysis 6) Discuss your recommendation on the viability of ABC for EON and Brothers Ltd., given thefinancial director's concerns.
What are support departments, and why are their costs allocated to other departments? What process is used to allocate support department costs?
Cost accounting provides management with a variety of cost classifications that can be used for different decision-making processes. Write your opinion on how management could use each of the following cost classification for decision making: Direct and indirect costs. Fixed, variable, and mixed costs. Period and product costs. Manufacturing and selling costs. Standards and actual costs.
In the context of a local/regional organization, explain the idea of “cost object”. Discuss the four “responsibility centres”, in the selected organization, which are linked to responsibility accounting. What are the main drawbacks of responsibility accounting? Support your answer with relevant examples.