Chapter 12 Subunit 5

The corporation has the opportunity to rent a warehouse containing 110,000 square feet for $480,700 per year. This facility would be shared by all three divisions with the additional unused space reserved for the anticipated growth of Division 3. If the corporation uses the incremental cost allocation method to assign the $480,700 cost of the large warehouse, the amount allocated to Division 3 would be

$10,700

Which one of the following allocation approaches will ensure that the production departments do not underestimate their planned usage of service at the start of the budget period as well as make the service departments cost efficient?

Budgeted rates and standard hours allowed for output attained for variable costs and budgeted rates and capacity available for fixed costs.

A hospital has installed a new computer system. The system was designed and constructed based on the anticipated number of hours of usage required by the various hospital departments according to projections made by the departmental managers. Virtually all of the operating costs of the system are fixed. What would be the most systematic and rational manner in which to allocate the new computer system costs to the various hospital departments?

By the anticipated number of hours of usage.

Managers are most likely to accept allocations of common costs based on

Cause and effect.

Which one of the following companies is likely to experience dysfunctional motivation on the part of its managers due to its allocation methods?

Company B uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building. It also uses ROI to evaluate the divisional performances.

All of the following are issues that should be considered in evaluating performance when common costs are allocated to business segments except that

Cost allocations are not included in the calculation of long-term cost per unit.

A finance group purchased a new project management software package costing $100,000. For an additional $10,000, the tax reporting team purchased a smaller application that would have cost $40,000 to buy separately. The controller will allocate the costs mainly to the finance group, the primary users, and should use the

Incremental cost allocation method, allocating $10,000 to the tax reporting team and $100,000 to the finance group.

Common costs are

Indirect costs.

A large corporation allocates the costs of its headquarters staff to its decentralized divisions. The best reason for this allocation is to

Remind divisional managers that common costs exist.

The Finance Department has purchased a new color copier system for $10,000 that will help with required reporting. The IT Department was planning to purchase a similar system for an additional $10,000 but has realized that there are enough system resources from the Finance Department's purchase that both groups can share the new equipment equally. In order to fairly allocate the common cost of the equipment, the controller should use the

Stand-alone cost method and allocate $5,000 to each department.

If a company allocates common costs by weighting the costs of each user as a separate entity, it is using which one of the following cost allocation methods?

Stand-alone.

Most firms allocate corporate and other support costs to divisions and departments for all of the following reasons except to

Stimulate profit-center managers to put pressure on central managers to control service costs.