EXERCISE 6-11. Problems with Cost Allocation. Auburn Banking and Loan Company has six service departmentshuman resources, duplicating, janitorial, accounting, graphic design, and food serviceswhose costs are allocated to the companys two subsidiaries, Auburn Personal Banking and Auburn Business Banking, on the basis of their relative sales.

Required

a. SupposeyouarethepresidentofAuburnBusinessBanking.Willyouperceivetheallocated service department costs to be fixed costs, variable costs, or mixed costs?

b. Inperformingincrementalanalysisrelatedtoexpandingorcontractingherbusiness, will the president of Auburn Business Banking tend to overestimate or underestimate incremental costs? Explain