ADMINISTRATIVE COST (REVIEWER)

1. In allocating factory service department costs to producing departments, which one of the
following items would most likely be used as an activity base?
A. Units of product sold.
B. Salary of service department employees.
C. Units of electric power consumed.
D. Direct materials usage.

2. The two most appropriate factors for budgeting manufacturing overhead expenses would be
A. Machine hours and production volume.
B. Management judgment and contribution margin.
C. Management judgment and production volume.
D. Management judgment and sales dollars.

3. When allocating service department costs to production departments, the method that does
not consider different cost behavior patterns is the
A. Step method.
B. Reciprocal method.
C. Direct method.
D. Single-rate method.

4. There are several methods for allocating service department costs to the production
departments. The method that recognizes service provided by one service department to
another but does not recognize reciprocal interdepartmental service is the
A. Direct method.
B. Variable method.
C. Reciprocal method.
D. Step-down method.

5. A large manufacturing company has two service departments and two production
departments. Each of the service departments renders services to each other and to the two
production departments. Which one of the following methods would most accurately allocate the
costs of the service departments to the production departments of this company?
A. The direct allocation method.
B. The step-down allocation method.
C. The linear allocation method.
D. The reciprocal allocation method.

6. When allocating service and administrative costs, the least useful criterion as a basis for
allocation is
A. Fairness.
B. Benefit.
C. Cause.
D. Ability to bear.

7. A corporation allocates indirect corporate overhead costs to its operating divisions. The
company uses a cause-and-effect criterion in the selection of appropriate allocation bases.
Which of the following would be an appropriate allocation base to assign the costs of the
corporate personnel department to the operating divisions using a cause-and-effect criterion?
A. Number of employees in each division.
B. Square footage of space occupied by each division.
C. Total service years of employees in each division.
D. Total book value of identifiable division assets.

8. When allocating costs from one department to another, a dual-rate cost-allocation method
may be used. The dual-rate cost-allocation method is most useful when
A. Two or more cost pools are to be allocated.
B. Two or more departments' costs are to be allocated.
C. Two or more products are produced.
D. Costs are separated into variable-cost and fixed-cost subpools.

9. The management of a company wishes to encourage all other departments to use the legal
department, as circumstances warrant. To accomplish this, legal department costs should be
A. Allocated to users on the basis of the actual cost of hours used.
B. Allocated to users on the basis of the budgeted cost of actual hours used.
C. Allocated to users on the basis of standard cost for the type of service provided.
D. Absorbed as a corporate expense.

10. A furniture company manufactures several steel products. It has three production
departments: Fabricating, Assembly, and Finishing. The service departments include
Maintenance, Material Handling, and Designing. Currently, the company does not allocate
service department costs to the production departments. The new cost accountant believes that
service department rates should be developed and charged to the production departments for
services requested. If the company adopts this new policy, the production department managers
would be least likely to
A. Request an excessive amount of service.
B. Replace outdated and inefficient systems.
C. Refrain from using unnecessary services.
D. Be encouraged to control costs.