1. Which of the following is a good reason for allocating indirect cost to operating departments?

a. To remind managers that revenues must cover indirect cost

b. To recognize mat operating departments, benefit from the service

c. To encourage managers to use services wisely

d. All of the above.

2. Under which of the following circumstances could allocations (including transfer prices) affect the firm's income?

a. Regulatory agencies use reports on the affected segments

b. The allocations prompt managers to alter their decisions

c. The firm operates in more than one state/country

d. All of the above

3. Using a transfer price equal to the market price of outside providers of a service is

a. Likely to encourage use of the service of the internal provider

b. A good policy unless segments are free to acquire the service from an outside provider

c. Particularly appropriate if the service departement is operating at or near capacity

d. Better than using no transfer price