Fundamentals Of Cost Accounting 6th Edition By William Lanen – Test Bank

Chapter 11 Service Department and Joint Cost Allocation

1) The human resource department in a manufacturing company would be considered a service department.

Answer: TRUE
Explanation: Human resources would be considered a support department for the manufacturing activities of the firm, and therefore, a service department.
Difficulty: 1 Easy
Topic: Service Department Cost Allocation
Learning Objective: 11-01 Explain why service costs are allocated.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

2) One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs.

Answer: TRUE
Explanation: Allocating service department costs makes manufacturing managers aware of the support costs required to complete their manufacturing efforts as well as provide better product costing.
Difficulty: 2 Medium
Topic: Service Department Cost Allocation
Learning Objective: 11-01 Explain why service costs are allocated.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

3) The direct method makes no cost allocations between or among service departments.

Answer: TRUE
Explanation: All costs are allocated directly to the producing departments, as if service departments were not a user of services themselves.
Difficulty: 1 Easy
Topic: Direct Method
Learning Objective: 11-02 Allocate service department costs using the direct method.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

4) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.

Answer: FALSE
Explanation: The allocation base would remain constant across the three allocation methods.
Difficulty: 2 Medium
Topic: Direct Method
Learning Objective: 11-02 Allocate service department costs using the direct method.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

5) The step method allocates some, but not all, service department costs to other service departments.

Answer: TRUE
Explanation: In allocating service department costs, the majority of the services provided are usually allocated to the production departments. Once the costs of a service department have been allocated, it is considered “closed” and cannot be the recipient in future allocations.
Difficulty: 1 Easy
Topic: Step Method
Learning Objective: 11-03 Allocate service department costs using the step method.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

6) One advantage of the step method is that all reciprocal services are recognized between service departments.

Answer: FALSE
Explanation: In the step method, once the costs of a service department have been allocated, it is considered “closed” and cannot be the recipient in future allocations.
Difficulty: 1 Easy
Topic: Step Method
Learning Objective: 11-03 Allocate service department costs using the step method.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

7) With the reciprocal method, the total service department costs less the direct costs of the service department equal the cost allocated to the service department.

Answer: TRUE
Explanation: Direct costs + Costs allocated from other services = Total Cost.
Difficulty: 2 Medium
Topic: Reciprocal Method
Learning Objective: 11-04 Allocate service department costs using the reciprocal method.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

8) One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization’s service departments.

Answer: FALSE
Explanation: The reciprocal method is the most accurate method.
Difficulty: 2 Medium
Topic: Reciprocal Method
Learning Objective: 11-04 Allocate service department costs using the reciprocal method.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

9) In deciding whether to outsource a service department or not, the cost of the service department should be estimated using the step method of allocation.

Answer: FALSE
Explanation: The reciprocal method should be used as it is the most accurate method.
Difficulty: 2 Medium
Topic: The Reciprocal Method and Decision Making
Learning Objective: 11-05 Use the reciprocal method approach for outsourcing decisions.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

10) Joint products are outputs from common inputs and a common production process.

Answer: TRUE
Explanation: This statement is the definition of joint products.
Difficulty: 1 Easy
Topic: Allocation of Joint Costs
Learning Objective: 11-06 Explain why joint costs are allocated.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation