14 3 analyze how the selection of the single or dual cost allocation rate affects th 4302826

 

14.3   Analyze how the selection of the single or dual cost allocation rate affects the calculation of the efficiency variance.

 

1) The user department is responsible for any unfavourable cost variances during the budgeting period if budgeted prices and quantities are used for cost allocation.

 

2) User departments will be able to determine their allocated costs for each category in advance if budgeted usage is the allocation base.

3) A budgeted rate helps to motivate the manager of a support department.

 

4) A support department adds value directly to a product or service, which is observable by the customer.

 

5) When budgeted cost-allocation rates are used, managers of the supplier division are motivated to improve efficiency.

 

6) When budgeted cost-allocation rates are used, variations in actual usage by one division affect the costs allocated to other divisions.

 

7) When choosing between budgeted usage and actual usage as allocation bases, which of the following is true?

A) Actual rates let users know in advance what their costs are.

B) When budgeted rates are used, users must wait till the end of the budget period to know what their costs are.

C) With actual rates, a support department, rather than a user department, bears the risk of unfavourable cost variances.

D) Budgeted rates may lead to user departments outsourcing needed work, rather than relying on an internal support department.

E) Budgeted rates may help the manager of a support department to improve efficiency.

8) Fixed costs

A) should be allocated according to past production capacity.

B) should be allocated according to current usage.

C) should be allocated according to short-term expected usage.

D) should be allocated according to long-term expected usage.

E) should be allocated using actual usage as the allocation base.

 

Use the information below to answer the following question(s).

 

We Be Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 of common variable costs. Data are provided below for the capacity allowed and the capacity used.

 

Department	Capacity Provided in Hours	Capacity Used in Hours
Barbell Department	500	400
Sauna Department	300	400

 

For both departments, common fixed costs are to be allocated on the basis of capacity provided and common variable costs are to be allocated on the basis of capacity used.

 

9) The fixed and variable costs allocated to the Barbell Department are

A) $50,000 and $75,000, respectively.

B) $50,000 and $60,000, respectively.

C) $30,000 and $75,000, respectively.

D) $30,000 and $60,000, respectively.

E) $30,000 and $50,000 respectively.

 

10) The fixed and variable costs allocated to the Sauna Department are

A) $50,000 and $75,000, respectively.

B) $50,000 and $60,000, respectively.

C) $30,000 and $75,000, respectively.

D) $30,000 and $50,000, respectively.

E) $30,000 and $60,000 respectively