Which of the following is an advantage of using the dual rate method of allocating support department costs?

Chapter 8 DSM:1)Favorable total fixed overhead variance =$55,000. Unfavorable fixed overhead spending variance =$20,000.Production-volume variance = totalvariance – spending variance-> (55,000) – 20,000 =75,000 F.2)Actual production & sales for year =195 units. Bdgt production & sales for year =200 units. Bdgt fixed costs =$540,000. Actual fixed costs =$600,000.Fixed overhead flexible-bdgt variance = actual costs incurred – flexible bdgt amt-> 600,000 – 540,000 =60,000 U.3)There is noefficiency variancefor fixed overhead costs. The fixed overhead spending variance is the same amt as the fixed overhead flexible-bdgt variance.4)Activity-based costing systems classify costs into unit-level, batch-level, product-sustaining, & facility-sustaining costs.Focus on individualactivities as fundamental cost objects. When paired with standard costing, it can facilitate variance analysis. A company with ABC system & batch-level costs can benefit greatly from ABC variance analysis.5)Variance analysis in nonmanufacturing companies:Few overhead costs can be traced to output measures in service companies in a cost-effective way. When a merchandising company is forced to close stores, it will likely result in unfavorable fixed-cost variances. Bothfinancial/nonfinancial measures are used to evaluate the performance of managers.6)Assuming both variable overhead spending variance & variable overhead efficiency variance are unfavorable, the journal entry to write-off of thevariance accounts to the COGS is:COGS (dr), variable overhead spending variance (cr), variable overhead efficiency variance (cr).7)Assuming a favorable variable overhead efficiency variance & unfavorable variable overhead spending variance, the journal entry to record thevariances for the accounting period is:variable overhead allocated (dr), variable overhead spending variance (dr), variable overhead control (cr),variable overhead efficiency variance (cr).Unfavorable variances are debits & favorable variances are credits.8)Rachel Apparels had bdgt fixed overhead of$300,000for bdgt production of1,000 unitsfor the year. During the year it produced1,100 units&the fixed costs were as originally bdgt.Fixed overhead allocated = ($300,000/1,000)*1,100 = $330,000. Production-volume variance = $300,000 -$330,000 = $30,000 F.9)The company most likely to have an unfavorable production-volume variance isRemart Inc., which sells its products in Nigeria & Sudan. Due tosudden internal strife, the exports to these countries have substantially fallen. Remart Inc.’s capacity will be under-utilized because of the fall indemand.10)Est. machine hours required =16,000 hours. Est. labor hours required =24,000 hours. Bdgt total costs in fixed overhead cost pool =$2,800,000.Bdgt total production =20,000 units.Bdgt fixed overhead cost per unit of cost-allocation base = bdgt total costs in fixed overhead cost pool /bdgt total qty of cost-allocation base (machine hours)-> $2,800,000/16,000 =$175.11)Type of variance: amount. Variable MOH spending =$30,600 F. Variable MOH efficiency =$102,000 U. Fixed overhead spending = $61,200 U.Operating income volume =$122,400 U. Fixed overhead production volume =$312,800 U.Sales-volume variance for operating income =Operating income volume variance + Fixed overhead production volume variance-> 122,400 + 312,800 =435,200 U.12)Unfavorable total fixed overhead variance =$75,000. Favorable fixed overhead spending variance =$10,000.Production-volume variance

CHAPTER 15

ALLOCATION OF SUPPORT-DEPARTMENT COSTS,

COMMON COSTS, AND REVENUES

15-1 Distinguish between the single-rate and the dual-rate methods.

The single-rate (cost-allocation) method makes no distinction between fixed costs and variable

costs in the cost pool. It allocates costs in each cost pool to cost objects using the same rate per

unit of the single allocation base. The dual-rate (cost-allocation) method classifies costs in each

cost pool into two pools—a variable-cost pool and a fixed-cost pool—with each pool using a

different cost-allocation base.

15-2 Describe how the dual-rate method is useful to division managers in decision making.

The dual-rate method provides information to division managers about cost behavior.

Recognizing the different behavior of fixed costs and variable costs is useful in decision making.

15-3 How do budgeted cost rates motivate the support-department manager to improve

efficiency?

Budgeted cost rates motivate the manager of the support department to improve efficiency

because the support department bears the risk of any unfavorable cost variances.

15-4 Give examples of allocation bases used to allocate support-department cost pools to

operating departments.

Examples of bases used to allocate support department cost pools to operating departments

include the number of employees, square feet of space, number of direct labor hours, and

machine-hours.

15-5 Why might a manager prefer that budgeted rather than actual cost-allocation rates be used

for costs being allocated to his or her department from another department?

The use of budgeted indirect cost allocation rates rather than actual indirect rates has several

attractive features to the manager of a user department:

a.The user knows the costs in advance and can factor them into ongoing operating

choices.

b.The cost allocated to a particular user department does not depend on the amount

of resources used by other user departments.

c.Inefficiencies at the department providing the service do not affect the costs allocated

to the user department.

15-6 “To ensure unbiased cost allocations, fixed costs should be allocated on the basis of

estimated long-run use by user-department managers.” Do you agree? Why?

15-1

What is dual rate method of cost allocation?

What are the advantages of cost allocation?

Which of the following is one of the methods of allocating support department costs to operating departments?

Which of the following methods of allocating support department costs is the simplest?