 Show Quiz Week 2 Management accounting Indirect cost allocation and impact on financial statements 1.Maintenance personnel intervenes on facilities and equipment upon request from the other departments. The time spent on each intervention is fixed and it always involves the same number of technicians who have the same level of qualification. Which of the following allocation bases would you recommend to allocate variable maintenance costs? (1 point) 2.Which of the following statements is true? (1 point) 3.Which of the following statements is true? (1 point) a. Number of interventions in each department. b. Labor hours used in each department. c. Material costs incurred in each department. d. Surface occupied by each department. e. Record of each technician’s time dedicated to each department. a. Pooling costs that have different cost drivers may result in unreliable cost allocation. b. Pooling indirect costs items in cost pools necessarily results in less reliable cost allocation. c. In theory, there should be as many cost pools as there are cost objects. d. Several allocation bases should be associated with a non-homogeneous cost pool. e. A single cost pool will have a different allocation bases for each cost object. a. In manufacturing companies, operating departments help other departments operate properly. b. In manufacturing companies, service departments are departments providing services to external customers. c. In manufacturing companies, some of the costs incurred by support departments are direct to the products. d. When operating departments are specialized in one product line, their costs are direct to that product line. e. Support departments are good cost pools because they always gather homogeneous costs. Chapter 07 Testbank Key 1. (p. 286) Which of the following statements is false? Manufacturing overhead costs are: A. sometimes called factory burden B. indirect product costs C. all manufacturing costs other than direct material and direct labour D. non-existent in service firms AACSB: Reflective Difficulty: Easy Learning Objective: 07-01 Explain the nature of overhead costs and other indirect costs 2. (p. 287) A cost pool is: A. a collection of costs to be assigned B. the joint result of several subunit activities C. the primary function of a responsibility accounting system D. a performance report of the lowest level manager AACSB: Reflective Difficulty: Easy Learning Objective: 07-02 Describe the general principles for allocating indirect costs to cost objects 3. (p. 287) The process of assigning the costs in a cost pool to the cost objects is called: A. cost allocation B. segmented profit and loss statement C. varianc e D. absorption costing AACSB: Reflective Difficulty: Easy Learning Objective: 07-02 Describe the general principles for allocating indirect costs to cost objects What is sequential method of allocation?The sequential method is used to allocate the cost of service departments to other departments within an organization. Under this approach, the cost of each service department is allocated one department at a time.
What methods allocates support department costs?There are three methods for allocating service department costs: direct, sequential, and reciprocal.
Which of the following methods of support department cost allocation recognizes all the interaction among the support departments?The sequential (or step) method of allocation recognizes that interactions among support departments do occur.
What are the 3 allocation methods?C.
There are three methods commonly used to allocate support costs: (1) the direct method; (2) the sequential (or step) method; and (3) the reciprocal method. Many instructors choose to defer coverage of the reciprocal method to cost accounting.
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