In the single rate method used in the support division cost allocation, when budgeted cost-allocations rate is used: O user/operating divisions pay for inefficiencies of the supplier/support department Ouser/operating divisions pay for costs that exceed budgeted amounts O the manager of the supplier/support division bears the risk of unfavorable cost variances Ovariations in actual usage by one operating division affect the costs allocated to other operating divisions

In the single rate method used in the support division cost allocation, when budgeted cost-allocations rate is used: O user/operating divisions pay for inefficiencies of the supplier/support department Ouser/operating divisions pay for costs that exceed budgeted amounts O the manager of the supplier/support division bears the risk of unfavorable cost variances Ovariations in actual usage by one operating division affect the costs allocated to other operating divisions

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter7: The Master Budget And Flexible Budgeting

Section: Chapter Questions

Problem 25Q: When allocating service department costs to production departments, why is the standard cost that...

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Explain why either normal or peak capacity of the producing (or user) departments should be used to allocate the fixed costs of support departments.
The actions listed next are associated with either an activity-based operational control system or a traditional operational control system: a. Budgeted costs for the maintenance department are compared with the actual costs of the maintenance department. b. The maintenance department manager receives a bonus for beating budget. c. The costs of resources are traced to activities and then to products. d. The purchasing department is set up as a responsibility center. e. Activities are identified and listed. f. Activities are categorized as adding or not adding value to the organization. g. A standard for a products material usage cost is set and compared against the products actual materials usage cost. h. The cost of performing an activity is tracked over time. i. The distance between moves is identified as the cause of materials handling cost. j. A purchasing agent is rewarded for buying parts below the standard price set by the company. k. The cost of the materials handling activity is reduced dramatically by redesigning the plant layout. l. An investigation is undertaken to find out why the actual labor cost for the production of 1,000 units is greater than the labor standard allowed. m. The percentage of defective units is calculated and tracked over time. n. Engineering has been given the charge to find a way to reduce setup time by 75 percent. o. The manager of the receiving department lays off two receiving clerks so that the fourth-quarter budget can be met. Required: Classify the preceding actions as belonging to either an activity-based operational control system or a traditional control system. Explain why you classified each action as you did.
When allocating service department costs to production departments, why is the standard cost that the service department was expected to incur, rather than the actual cost that was incurred, used in the allocation?
Which of the following statements is false? Cost allocations such as activity-based costing allow manager to evaluate profitability of their products. A budget is a quantitative plan for acquiring and using financial and other resources over a specific forthcoming time period. A detailed activity-based costing system is costly to implement. Using different allocation base does not affect manufacturing overhead costs allocated to each product.
The step-down allocation method: a. recognizes the total amount of services that support departments provide to each other b. allocates complete reciprocated costs c. typically begins with the support department that provides the highest percentage of its total services to other support departments d. offers key input for outsourcing decisions
What are support departments, and why are their costs allocated to other departments? What process is used to allocate support department costs? How are joint costs allocated? Explain and analyze using numerical example. . How are budget variances calculated and used as performance measures? Provide numerical example?
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.
Manufacturing overhead variations become more meaningful as control device when: A. flexible budgeting techniques are used. B. manufacturing overhead variations with a fixed budget are used C. three variations fixed budget are used Or the answer is not given? The budgets that are prepared for various degree of plant utilization and are used to control costs at different levels of productive activity is: A. operating budgets B. rolling budgets C. flexible budgets D. capital budgets
Match the definition the term. Terms: Cost variance Overhead cost variance Price variance Quantity variance Standard costs Sales budget Production Budget Balanced scorecard Profit center Cost center Definitions: 1. A plan showing the units of goods to be sold and sales to be derived; usually starting pointing the budgeting process. 2. A system of performance measures, including the nonfinancial measures, used to asses manager performance. 3. A department that incurs cost and genrate revenues, such as a selling department 4. The difference between actual and budgeted sales or cost caused by the difference between the actual per unit and the budgeted price per unit. 5. The difference between actual cost and standard cost, made up of a price variance and a quantity variance. 6. The difference between the total overhead cost actually incurred and the total overhead cost applied to products 7. The difference between the actual budgeted cost caused by…
When using a standard cost system what is the report that summarizes actual costs, standard costs, and the differences for the units produced called? Group of answer choices variable performance report budget performance report static report none of the above
If a division manager’s compensation is based upon the division’s net income, the manager may decide to meet the net income targets by increasing production when using variable costing, in order to decrease net income. when using absorption costing, in order to decrease net income. when using variable costing, in order to increase net income. when using absorption costing, in order to increase net income.
Which of the following is a measure of a cost center manager's performance? Oa. return on investment and residual income measures Ob. balance sheet Oc. budget performance report Od. divisional income statements