Which of the following would be the case under the stand-alone method of allocating common costs

What is the Stand-Alone Cost Method?

The stand-alone cost method allocates group costs to users as a proportion of the costs that would have been individually incurred by each user. This approach is a relatively simple and understandable method for allocating costs.

Example of the Stand-Alone Cost Method

For example, the field service department and the returns department separately want to ship repaired appliances to two customers located in the same town. To do so individually, the field service department would have to pay $300 in shipping charges, while the returns department would have to pay $150. The company instead decides to rent its own truck and driver to make the deliveries, at a total cost of $330. Under the stand-alone method, the field service department is charged $220 of the delivery cost, under the following formula:

$300 Independent field service delivery ÷ ($300 Independent field service delivery

+ $150 Independent returns department delivery)

= 66.67% of total cost of independent deliveries

66.67% x $330 Consolidated delivery = $220 Cost allocation

The same formula is used to charge $110 to the returns department.

The method that allocates costs in each cost pool using the same rate per unit is known as the ________.
A) incremental cost-allocation method
B) reciprocal cost-allocation method
C) single-rate cost allocation method
D) dual-rate cost-allocation method

C) single-rate cost allocation method

The dual-rate cost-allocation method classifies costs in each cost pool into a ________.
A) budgeted-cost pool and an actual-cost pool
B) variable-cost pool and a fixed-cost pool
C) direct-cost pool and an indirect-cost pool
D) direct-cost pool and a reciprocal-cost pool

B) variable-cost pool and a fixed-cost pool

Which of the following departments would not be considered a service or support department?
A) assembly
B) information systems
C) shipping
D) plant maintenance

When using the dual-rate method, the fixed cost allocation is based on ________.
A) actual rate
B) budgeted usage
C) incremental cost allocation
D) prime cost allocation

Which of the following is a disadvantage of single-rate method?
A) It is very costly to implement.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It does not signal to department managers how variable costs and fixed costs behave differently.
D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging task.

B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.

Which of the following is an advantage of a dual-rate method?
A) It is the most widely used method in practice.
B) It is less costly to implement.
C) It avoids the expensive analysis for categorizing costs as either fixed or variable.
D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.

D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.

Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage, which may tempt some managers to underestimate their planned usage.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.
D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.

A) It allocates fixed costs on the basis of budgeted long-run usage, which may tempt some managers to underestimate their planned usage.

Which of the following is an advantage of using practical capacity to allocate costs?
A) is that it allows a downward supply spiral to develop
B) is that it focuses management's attention on managing unused capacity
C) is that budgets are much easier to develop
D) is that it results in departments bearing a lower percentage of fixed costs

B) is that it focuses management's attention on managing unused capacity

The Charmatz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year:

Budgeted costs of operating the copying facility
for 400,000 to 600,000 copies:
  Fixed costs per year  $64,000
  Variable costs  5 cents (0.05)    per copy
Budgeted long-run usage in copies per year:
  Marketing Department  90,000    copies
  Operations Department  310,000    copies

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Marketing Department was 120,000 copies and by the Operations Department was 380,000 copies. If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department?

:  [(310,000) / (90,000 + 310,000)) × $64,000] + (310,000 × $0.05) = $65,100

The Charmatz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year:

Budgeted costs of operating the copying facility
for 300,000 to 500,000 copies:
  Fixed costs per year  $66,000
  Variable costs  5 cents (0.05)    per copy
Budgeted long-run usage in copies per year:
  Marketing Department  110,000    copies
  Operations Department  390,000    copies

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Marketing Department was 120,000 copies and by the Operations Department was 360,000 copies. If a dual-rate cost-allocation method is used, what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs.

:  [(390,000) / (110,000 + 390,000)) × $66,000] + (360,000 × $0.05) = $69,480

The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted costs of operating the materials laboratory
for 100,000 to 200,000 technician hours per year:
  Fixed costs per year  $7,400,000
  Variable costs  $75    per technician hour
Budgeted long-run usage in hours per year:
  Large Plane Department  80,000    technician hours
  Small Plane Department  120,000    technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Large Plane Department was 60,000 technician hours and by the Small Plane Department was 80,000 technician hours. If a single-rate cost-allocation method is used, what amount of materials laboratory costs will be allocated to the Large Plane Department? Assume actual usage is used to allocate laboratory costs.

($7,400,000 + (200,000 hours × $75))/ 200,000 hours = $112.00 / per hour used
60,000 = $6,720,000

The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted costs of operating the materials laboratory
for 100,000 to 200,000 technician hours per year:
  Fixed costs per year  $8,200,000
  Variable costs  $74    per technician hour
Budgeted long-run usage in hours per year:
  Large Plane Department  90,000    technician hours
  Small Plane Department  110,000    technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 80,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Small Plane Department?

Budgeted materials laboratory costs for Small Plane Department = [(110,000 / 200,000) ×  $8,200,000] + (110,000 × $74) = $12,650,000

) Illumination Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Budgeted costs of operating the plant for 2000 to 3000 hours:
  Fixed operating costs per year  $500,000
  Variable operating costs  $900  per hour
Budgeted long-run usage per year:
  Flashlight Division  2000  hours
  Night Light Division  1000  hours
Practical capacity  4000  hours

Assume that practical capacity is used to calculate the allocation rates.

Actual usage for the year by the Flashlight Division was 1500 hours and by the Night Light Division was 800 hours. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.

Flashlight Division cost = [(2000 / 4000) × $500,000] + (2000 × $900) = $2,050,000
($2,050,000 / 2000) × 1500 = $1,537,500

When budgeted cost-allocations rates are used ________.
A) user departments are not informed about the charges until the end of the period which makes decision making during the period difficult
B) user departments can determine the amount of service to request and if allowed, can determine whether to use an internal or external resource
C) user divisions pay for costs that exceed budgeted amounts
D) user divisions pay for inefficiencies of the supplier department

B) user departments can determine the amount of service to request and if allowed, can determine whether to use an internal or external resource

When actual cost-allocations rates are used, which of the following would be true?
A) user divisions pay for costs that exceed budgeted amounts
B) managers of the supplier division are motivated to improve efficiency
C) user divisions are unaware of the allocated amounts until the end of the budget period
D) managers know with certainty the rates to be used in that budget period

C) user divisions are unaware of the allocated amounts until the end of the budget period

Under the dual-rate cost-allocation method, when fixed costs are allocated based on actual usage then ________.
A) user-division managers are motivated to make accurate long-run usage forecasts
B) user-division managers can better plan for the short-run and for the long-run
C) the costs of unused capacity are highlighted
D) variations in one division's usage affect another division's allocation

D) variations in one division's usage affect another division's allocation

The costs of unused capacity are highlighted when ________.
A) actual usage based allocations are used
B) budgeted usage allocations are used
C) practical capacity-based allocations are used
D) the dual-rate cost-allocation method allocates fixed costs based on actual usage

C) practical capacity-based allocations are used

To discourage unnecessary use of a support department, management might ________.
A) allocate user department costs based upon support department usage
B) allocate support department costs based upon user department usage
C) allocate a fixed amount of support department costs to each and every department
D) allocate a fixed amount of user department costs to each and every department

B) allocate support department costs based upon user department usage

Special cost-allocation problems arise when ________.
A) support department costs exceed budgetary estimates
B) practical capacity is used as the allocation base
C) support departments provide reciprocal services to each other and operating departments
D) the same cost-allocation base is used among various support departments

C) support departments provide reciprocal services to each other and operating departments

Which of the following describes who the direct allocation method allocates support-department costs?
A) it allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments
B) it allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments
C) it allocates each support-department's costs to operating departments only
D) it requires managers to rank the support departments in the order that the step-down allocation is to proceed

C) it allocates each support-department's costs to operating departments only

The method that allocates each department's budgeted costs to operating departments only is called ________.
A) direct method
B) step-down method
C) reciprocal method
D) sequential method

Which of the following statements is true about the step-down method?
A) it partially recognizes the services provided among support departments
B) it does not recognize the total services that support departments provide to each other
C) it is conceptually the most precise method
D) it results in allocating only the support costs used by operating departments

B) it does not recognize the total services that support departments provide to each other

Which of the following statements is false with regards to departmental cost allocations?
A) amounts allocated to departments will most likely differ depending on the cost allocation method used
B) the total amount allocated among departments will differ in total depending on the cost allocation method used
C) the reciprocal method is usually the most conceptually precise method because it considers mutual services provided among all support departments
D) the step-down and direct methods are simple for managers to compute and understand relative to the reciprocal method

B) the total amount allocated among departments will differ in total depending on the cost allocation method used

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $200,000 are allocated based on the number of employees. The costs of operating departments A and B are $208,000 and $312,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
  Production
  Support Departments  Departments 
  Maintenance Department  Personnel Department  A  B
Budgeted costs  $320,000  $200,000  $208,000  $312,000
Budgeted maintenance-hours  NA
  860
  1230
  690

Number of employees  50  NA  270  630

Using the step-down method, what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Do not round any intermediary calculations.)

Maintenance provides the greatest amount of service to support departments, so it is allocated first. Dept B: 690 / (860 + 1230 + 690) × $320,000 = $79,424

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $310,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $190,000 are allocated based on the number of employees. The costs of operating departments A and B are $200,000 and $300,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
  Production
  Support Departments  Departments 
  Maintenance Department  Personnel Department  A  B
Budgeted costs  $310,000  $190,000  $200,000  $300,000
Budgeted maintenance-hours  NA
  810
  1270
  630

Number of employees  65  NA  280  630

Using the direct method, what amount of Maintenance Department costs will be allocated to Department A? (Do not round any intermediary calculations.)

Maintenance Department costs allocated to Department A = 1270 / (630 + 1270) × $310,000 = $207,211

Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Budgeted manufacturing overhead costs:
  Plant Maintenance  PM (Support Dept)  $370,000
  Data Processing  DP (Support Dept)  $70,000
  Machining  M (Operating Dept)  $235,000
  Capping  C (Operating Dept)  $110,000

Services furnished:
By Plant Maintenance (budgeted labor-hours):
  to Data Processing  3900
  to Machining  5100
  to Capping  8100
By Data Processing (budgeted computer time):
  to Plant Maintenance  700
  to Machining  3500
  to Capping  650

Which of the following linear equations represents the complete reciprocated cost of the Data Processing Department?

B) DP= $70,000 + (3900/ 17,100) PM

Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Budgeted manufacturing overhead costs:
  Plant Maintenance  PM (Support Dept)  $380,000
  Data Processing  DP (Support Dept)  $60,000
  Machining  M (Operating Dept)  $210,000
  Capping  C (Operating Dept)  $150,000

Services furnished:
By Plant Maintenance (budgeted labor-hours):
  to Data Processing  3600
  to Machining  5400
  to Capping  8000
By Data Processing (budgeted computer time):
  to Plant Maintenance  800
  to Machining  4200
  to Capping  600

What is the complete reciprocated cost of the Plant Maintenance Department? (Do not round any intermediary calculations.)

DP = $60,000 + (3600 / 17,000) PM
PM = $380,000 + (800 / 5600) DP
PM = $380,000 + (800 / 5600) × [$60,000 + (3600 / 17,000) PM]
PM = $380,000 + $8571 + (0.030252)PM
0.969748 PM = $388,571
PM = $400,693

Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method. The following data from operations were collected for analysis:

Budgeted manufacturing overhead costs:
  Maintenance  M (Support Dept)  $400,000
  Personnel  P (Support Dept)  $150,000
  Weaving  W (Weaving Dept)  $620,000
  Colorizing  C (Colorizing Dept)  $360,000

Services furnished:
By Maintenance (budgeted labor-hours):
  to Personnel  1000
  to Weaving  8000
  to Colorizing  4100
By Personnel (Number of employees serviced):
  Plant Maintenance  12
  Weaving  36
  Colorizing  23

Which of the following linear equations represents the complete reciprocated cost of the Personnel Department?

C) P = $150,000 + (1000 / 13,100) M

Which of the following is one of the methods of allocating support department costs to operating departments that partially recognizes mutual service provided among all support departments?
A) dual-cost allocation method
B) direct method
C) sequential allocation method
D) single-rate cost allocation method

C) sequential allocation method

Corny Solutions processes various corn related food items. One of its facilities located in Iowa, performs some initial processing of corn on the cob once it arrives from the corn fields.  The corn from that facility will be further processed elsewhere into corn for popping and corn meal. The costs incurred at the Iowa plant would be considered ________.
A) combined costs
B) distinct costs
C) fixed costs
D) common costs

Which of the following would be the case under the stand-alone method of allocating common costs?
A) the individual users of a cost object are ranked in the order of users least responsible for the common cost and then uses this ranking to allocate cost among those users
B) disputes can arise over who is the primary user
C) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs
D) the individual users of a cost object are ranked in the order of users most responsible for the common cost and then uses this ranking to allocate cost among those users

C) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs

Under the incremental method of allocating common costs ________.
A) the parties are interested in being viewed as primary users
B) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs
C) the first-incremental user bears a higher proportion of the cost in comparison with the primary user
D) the primary user bears the maximum of the total cost

D) the primary user bears the maximum of the total cost

Emrald Corp currently uses a manufacturing facility costing $520,000 per year; 85% of the facility's capacity is currently being used. A start-up business has proposed a plan that would utilize the other 15% of the facility and increase the overall costs of maintaining the space by 12%. If the stand-alone method were used, what amount of cost would be allocated to the start-up business?

Amount allocated = $520,000 × 1.12 × 0.15 = $87,360

Emrald Corp currently uses a manufacturing facility costing $560,000 per year; 90% of the facility's capacity is currently being used. A start-up business has proposed a plan that would utilize the other 10% of the facility and increase the overall costs of maintaining the space by 11%. If the incremental method were used, what amount of cost would be allocated to the start-up business?

Amount allocated = $560,000 × 11% = $61,600

Harbor Corp currently leases a corporate suite in an office building for a cost of $300,000 a year. Only 81% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 19% of the suite and increase the overall costs of maintaining the space by $28,139. If the stand-alone method were used, what amount of cost would be allocated to the start-up business? (Round the final answer to the nearest dollar.)

Amount allocated = $328,139 × 0.19 = $62,346

Harbor Corp currently leases a corporate suite in an office building for a cost of $360,000 a year. Only 80% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 20% of the suite and increase the overall costs of maintaining the space by $20,484. If the incremental method were used, what amount of cost would be allocated to the start-up business?

Amount allocated = $20,484, the increased cost of maintaining the space

Which of the following would be an explicit agreement of reimbursement on a contract?
A) contractor will produce a bill at the end of the contract without having disclose costs
B) contractor will seek payment for contract without having to submit a bid or disclose a mark-up
C) contractor agrees with customer before the project begins, on a set price
D) Contractor will bill the customer based on what the contractor perceives to be the going rate

C) contractor agrees with customer before the project begins, on a set price

Contract disputes regarding cost allocation can be reduced by defining which of the following?
A) the material items allowed for production
B) the terms used, such as what constitutes direct labor
C) permissible tax deductions
D) minimum profit level the company should earn

B) the terms used, such as what constitutes direct labor

Cost-plus contracts negotiated with suppliers of the government usually involves ________.
A) a price that allows the contractor to break-even
B) a price that covers the contract's cost plus other noncash benefits
C) the supplier's cost to perform the contact (provide the product or service) plus a fee
D) a price that covers the contractor's direct costs plus an amount to cover overhead costs

C) the supplier's cost to perform the contact (provide the product or service) plus a fee

Which of the following is an example of an allowable cost considered by U.S. government contract?
A) supervision costs
B) costs of lobbying activities
C) costs of alcoholic beverages
D) costs of vacation for executives

In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because ________.
A) the government taxes the defense companies at a higher level than that of other public sector companies
B) there is an implicit agreement among defense contractors to "share contracts"
C) all defense contractors have essentially the same cost structure
D) no contractor is willing to assume all the risk of receiving a fixed price for the contract

D) no contractor is willing to assume all the risk of receiving a fixed price for the contract

) A company sells a software suite that includes a word processor and spreadsheet applications. The suite sells for $250 and the items are also available separately for $200 (spreadsheet) and $170 (word processor). The spreadsheet app is by far the best seller of the standalone product sales. Using the incremental-revenue allocation method and assuming that the spreadsheet is the primary product, how much of the $250 revenue from the bundled product sale would be allocated to the spreadsheet and to the word processing products?
A) $200 of revenue for the spreadsheet and $50 for the word processor
B) $200 of revenue for the spreadsheet and $0 for the word processor
C) $135 of revenue for the spreadsheet and $115 for the word processor
D) $250 of revenue for the spreadsheet and $0 for the word processor

A) $200 of revenue for the spreadsheet and $50 for the word processor

Craylon Corp sells two products X and Y. X sells for $200 and Y sells for $160. Both X and Y sell for $310 as a bundle. What is the revenue allocated to product Y, if product X is termed as the primary product in the bundle?

Revenue allocated to Y = $310 - $200 = $110

To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using ________.
A) selling prices
B) unit costs
C) physical units
D) stand-alone product revenues

D) stand-alone product revenues

If management wants to choose a method of revenue allocation that best captures the "benefits received" by customers then they would use ________ to allocate revenue to products in a bundle.
A) stand-alone revenue -allocation based on unit costs
B) stand-alone revenue-allocation based on selling prices
C) stand-alone revenue-allocation based on physical units
D) stand-alone revenue-allocation based on unit costs

B) stand-alone revenue-allocation based on selling prices

Which of the following methods ranks individual products in a bundle for revenue allocation?
A)  stand-alone revenue-allocation method
B) incremental revenue-allocation method
C) unit-cost weighting method
D) physical-unit weighting method

B) incremental revenue-allocation method

The best method to determining weights for the stand-alone revenue-allocation method is ________.
A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products
B) unit cost revenue-allocation method because it can be used on all occasions
C) the direct revenue-allocation method since selling prices or unit costs are difficult to calculate for individual products
D) physical-units revenue-allocation method because the physical units explicitly value the prices customers are willing to pay for the individual products

A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products

Which of the following best describes the stand-alone revenue-allocation method?
A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products
B) ranks individual products in a bundle according to criteria determined by management
C) ranks individual products in a bundle according to costs allocated to the products
D) survey customers about the importance of each of the individual products in their purchase decision

A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products

Which of the following is not one of the methods used to to allocate the revenues of a bundled product?
A) direct revenue method
B) stand-alone selling prices method
C) Stand-alone physical units method
D) incremental revenue method

Which of the following is an example of a bundled product?
A) a checking account
B) A complete mechanics tool kit
C) an accounting textbook with an access code to a homework/study system
D) Microsoft Excel

C) an accounting textbook with an access code to a homework/study system

Which of the following is an example of a revenue object?
A) suppliers
B) products
C) labor
D) duration to complete a given task

Revenue allocation is used when ________.
A) revenues cannot be estimated but can be traced to specific cost objects
B) revenues are related to a particular revenue object but cannot be traced to it in an economically feasible way
C) revenues are not related to a particular object but can be traced to that object in an economically feasible way
D) revenue optimization is the goal

revenues are related to a particular revenue object but cannot be traced to it in an economically feasible way