Fundamentals Of Cost Accounting 5th Edition By Lanen – Test Bank

Chapter 11 Service Department and Joint Cost Allocation Answer Key

True / False Questions

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

TRUE
Human resources would be considered a support department for the manufacturing activities of the firm, and therefore a service department.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 11-01 Explain why service costs are allocated.
Topic: Service Department Cost Allocation

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.

TRUE
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.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-01 Explain why service costs are allocated.
Topic: Service Department Cost Allocation

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

TRUE
All costs are allocated directly to the producing departments, as if service departments were not a user of services themselves.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 11-02 Allocate service department costs using the direct method.
Topic: Methods of Allocating Service Department Costs

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

FALSE
The allocation base would remain constant across the three allocation methods.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-02 Allocate service department costs using the direct method.
Topic: Methods of Allocating Service Department Costs

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

TRUE
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.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-03 Allocate service department costs using the step method.
Topic: Methods of Allocating Service Department Costs

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

FALSE
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.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 11-03 Allocate service department costs using the step method.
Topic: Methods of Allocating Service Department Costs

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

TRUE
Direct costs + costs allocated from other services = total cost.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-04 Allocate service department costs using the reciprocal method.
Topic: Methods of Allocating Service Department Costs

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

FALSE
The reciprocal method is the most accurate method.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-04 Allocate service department costs using the reciprocal method.
Topic: Methods of Allocating Service Department Costs

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.

FALSE
The reciprocal method should be used as it is the most accurate method.

AACSB: Analytical Thinking
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 11-05 Use the reciprocal method approach for outsourcing decisions.
Topic: Methods of Allocating Service Department Costs

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

TRUE
This is the definition of joint products.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 11-06 Explain why joint costs are allocated.
Topic: Allocation of Joint Costs