Which of the following companies is following a policy with respect to the costs of service departments that is not recommended?
A) To charge operating departments with the depreciation of forklifts used at its central warehouse, Shalimar Electronics charges predetermined lump-sum amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of their inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its service departments to its operating departments.

Question

Quizplus · Accepted Answer

Manhattan Electronics' method of using sales revenue to allocate costs related to the upkeep of its headquarters building is not recommended because it does not reflect the actual use of services or resources by the divisions. Allocation should be based on factors that more accurately reflect the consumption of services or resources.

Which of the Following Companies Is Following a Policy with Respect