 CHAPTER 15 Show ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES 15-1 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 The dual-rate method provides information to division managers about cost behavior. Knowing how fixed costs and variable costs behave differently is useful in decision making. 15.3 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 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 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, and c. inefficiencies at the department providing the service do not affect the costs allocated to the user department. 15.6 Disagree. Allocating costs on “the basis of estimated long-run use by user department managers” means department managers can lower their cost allocations by deliberately underestimating their long-run use (assuming all other managers do not similarly underestimate their usage). 15-7 The three methods differ in how they recognize reciprocal services among support departments: a. The direct (allocation) method ignores any services rendered by one support department to another; it allocates each support department’s costs directly to the operating departments. b. The step-down (allocation) method allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments. c. The reciprocal (allocation) method allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments. 15-1 The dual-rate cost-allocation method classifies costs in each cost pool into a ________. A) budgeted-cost pool and an actual-cost pool B) variable-cost pool and a fixed-cost pool C) direct-cost pool and an indirect-cost pool D) direct-cost pool and a reciprocal-cost pool What is dual allocation method?A more precise allocation means that your full product cost is more accurate.</p>","description":"<p>In cost accounting, the <i>dual rate cost allocation method</i> categorizes cost into two types of cost pools: fixed costs and variable costs. You calculate a different cost allocation rate for each cost pool.
What is the basis on which a cost pool is allocated?The allocation should be based on the benefits brought to the contract or project, and the method of allocation is the same for all indirect cost pools: divide the total collected in the overhead, G&A or fringe pool by an appropriate allocation base.
Which of the following is true of using the dual rate method of allocating support department costs?Which of the following statements is true about dual-rate method of allocating support-department costs? The dual-rate method partitions the cost of each support department into two pools, a variablecost pool and a fixed-cost pool.
What are the two types of cost allocation bases?There are three types of allocation bases in Cost accounting:. Predefined dimension member allocation bases.. Hierarchy allocation bases.. Formula allocation bases.. |
