Cost Accounting (14th Edition)

dual-rate method (p. 544)
incremental cost-allocation method
(p. 557)
incremental revenue-allocation
method (p. 562)
matrix method (p. 554)
operating department (p. 543)
production department (p. 543)
reciprocal method (p. 553)
revenue allocation (p. 561)
revenue object (p. 561)
service department (p. 543)
single-rate method (p. 544)
sequential allocation method (p. 552)
ASSIGNMENT MATERIAL 567
stand-alone cost-allocation method
(p. 557)
stand-alone revenue-allocation
method (p. 561)
step-down method (p. 552)
support department (p. 543)
Assignment Material
Questions
15-1 Distinguish between the single-rate and the dual-rate methods.
15-2 Describe how the dual-rate method is useful to division managers in decision making.
15-3 How do budgeted cost rates motivate the support-department manager to improve efficiency?
15-4 Give examples of allocation bases used to allocate support-department cost pools to operating
departments.
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?
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?
15-7 Distinguish among the three methods of allocating the costs of support departments to operating
departments.
15-8 What is conceptually the most defensible method for allocating support-department costs? Why?
15-9 Distinguish between two methods of allocating common costs.
15-10 What role does the Cost Accounting Standards Board play when companies contract with the
U.S. government?
15-11 What is one key way to reduce cost-allocation disputes that arise with government contracts?
15-12 Describe how companies are increasingly facing revenue-allocation decisions.
15-13 Distinguish between the stand-alone and the incremental revenue-allocation methods.
15-14 Identify and discuss arguments that individual product managers may put forward to support their
preferred revenue-allocation method.
15-15 How might a dispute over the allocation of revenues of a bundled product be resolved?
Exercises
15-16 Single-rate versus dual-rate methods, support department. The Chicago power plant that services
all manufacturing departments of MidWest Engineering has a budget for the coming year. This budget
has been expressed in the following monthly terms:
Manufacturing
Department
Needed at Practical Capacity
Production Level (Kilowatt-Hours)
Average Expected Monthly
Usage (Kilowatt-Hours)
Rockford 10,000 8,000
Peoria 20,000 9,000
Hammond 12,000 7,000
Kankakee ƒ8,000 ƒ6,000
Total 50,000 30,000
The expected monthly costs for operating the power plant during the budget year are $15,000: $6,000 variable
and $9,000 fixed.
1. Assume that a single cost pool is used for the power plant costs. What budgeted amounts will be allocated
to each manufacturing department if (a) the rate is calculated based on practical capacity and
costs are allocated based on practical capacity, and (b) the rate is calculated based on expected
monthly usage and costs are allocated based on expected monthly usage?
2. Assume the dual-rate method is used with separate cost pools for the variable and fixed costs.
Variable costs are allocated on the basis of expected monthly usage. Fixed costs are allocated on the
basis of practical capacity. What budgeted amounts will be allocated to each manufacturing department?
Why might you prefer the dual-rate method?
Required