CHAPTER 15 MULTIPLE CHOICE QUESTIONS 1. Boa Corp, distributes service department overhead costs directly to producing departments without allocation to the other service department. Information for the month of June is as follows. Service Departments Maintenance Utilities $20,000 $10,000 10% Overhead costs incurred Service provided to departments: Maintenance Utilities Producing - A Producing - B Totals 20% 40% 40% 100% 30% 60% 100% The amount of maintenance department costs distributed to producing Department A for June was (a) $8,000 (b) 88,800 (C) $10,000 (d) $11,000, Use the following data for questions 2 through 4. Hartwell Company allocates its service department overhead costs to producing departments. Information for the month of January is presented below. Maintenance Utilities Overhead costs incurred $18,700 $9,000 Service provided to: Maintenance department 10% Utilities department 20% Producing department A 40% 30% Producing department B 40% 60% 2. Under the step-down method, what is the total overhead cost to be allocated out of the Utilities Department? (@) 89,900 (b) $10,800 (e)$12,740 (d) $27,700 3. Assume that Hartwell Company distributes service department overhead costs based on the reciprocal method. What would be the formula to determine the reciprocal costs in the Maintenance Department? (a) M - $18,700+.10U (b) M - $9,000 + 20U. (c) M - $18,700 + 30U + 40A +40B. (d) M - $27,700 + 40A+ 40B. 26 4. Assume that Hartwell Company distributes utilities department overhead costs based on the reciprocal method. What would be the formula to determine the reciprocal costs of the Utilities Department? (a) U - $18,700 + 10M. (b) U9.000 + 20M. (c) U-$18,700 - 30M + 40H40B. (d) U-$27,700.40A + 40B. Use the following information for questions through 15. Bames Company has two service departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the service departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auctitor stated that the distribution of service department costs on the basis of annual sales dollars would lead to serious inequities. It was recommended that maintenance and engineering service hours be used as a better service cost allocation basis. For illustrative purposes, the following information was appended to the audit report Service Departments Production Departments Maintenance Engineering B Maintenance hours used 400 SOO 200 200 Engineering hours used 400 800 400 400 Department costs $12,000 $54.000 $80,000 $90,000 $50,000 5. Using simultaneous equations, what would be the reciprocal costs for the Engineering Department? (a) S12,000 (b) 554.000 (c) $60,000 (d) 557,000 6. How much Engineering Department cost would be allocated in total to Departments A, B, and C under the reciprocal method? (a) S48,000 (6) $54.000 (c) $60,000 (d) None of the above 7. Using the reciprocal method, what would be the total Maintenance Department cost prior to allocation to the Engineering and Production Departments? (a) S24,000 (b) $12,000 (c) $20,800 (d) $15,600 8. Under the reciprocal method, what portion of Maintenance Department cost is allocated to Department A? (a) 800/1.600 (b) 800/1,200 (c) 200/1,200 (d) 200/1,600 27 9. Using the direct method of cost allocation, how much Maintenance Department cost would be allocated to the Engineering Department? (a) $3,000 (b) 80 (2) $1,500 (d) $6,000 10. Using the direct method of cost allocation, what amount of Maintenance Department cost would be allocated to Department C? (a) 53,000 (b) 80 (e) $2,000 (d) 58,000 11. Using the direct method of cost allocation, what amount of Engineering Department cost would be allocated to Department A? (a) $20,800 (b) $27,000 (0) $0 (d) $54,000 The Maintenance Department renders 25% (400/1600) of its services to the Engineering Department. The Engineering Department renders 20% (400/2000) of its services to the Maintenance Department. Therefore, for questions 12 through 15 allocate Maintenance Department costs first. 12. Using the step-down method of cost allocation, what amount of maintenance cost would be allocated to Department B? (a) S6,000 (b) S1.500 (0) $11,000 (d) $9.500 13. Using the step-down method of cost allocation, what amount of Engineering costs would be allocated to the Maintenance Department? (a) $10,800 (b) 59,500 (e) 3,000 (d) $0 14. Using the step-down method of cost allocation, what amount of Engineering costs would be allocated to Department C? (a) $9,000 (b) 514,250 (0) $9.500 (d) $6,000 15. Using the step-down method of cost allocation, what is the total amount of service department costs allocated to Department A? (a) $38,000 (6) $37,500 (0) $40,000 (d) $34,500