The Copy Department of Hernandez Hardware is budgeted to incur $30,000 per month in fixed costs plus a cost of $0.02 per copy.The company allocates copy costs to user departments as follows:
-Fixed costs are allocated as a lump sum based on budgeted fixed costs and estimated peak demand for each department.
-Variable costs are allocated based on the budgeted rate per copy times the department's actual usage.
Which of the following is an advantage of this allocation scheme over allocating all actual service costs based on actual usage?
A)Departments that use copy services are charged for cost overruns in the copy department.
B)The amount charged to a particular user department is affected by the number of copies used by another department.
C)Managers in departments that use services pay for the fixed costs that fluctuate based on their changing needs.
D)Managers are charged for the activities they use.

Question

Quizplus · Accepted Answer

Allocating costs based on actual usage may not provide an accurate picture of the cost incurred by each department. Allocating costs based on a predetermined rate per copy times the department's actual usage ensures that the managers are charged for the activities they use. This allows for a better understanding of the cost incurred by each department and promotes better cost control.

The Copy Department of Hernandez Hardware Is Budgeted to Incur