Question 1

The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.The allocation base would remain constant across the three allocation methods.

Accepted Answer

False

Question 2

The step method allocates some,but not all,service department costs to other service departments.In allocating service department costs,the majority of the services provided are usually allocated to the production departments.Once the costs of a service department have been allocated,it is considered "closed" and cannot be the recipient in future allocations.

Accepted Answer

This statement is true. The step method is a type of allocation method that only allocates some of the service department costs to other departments, usually allocating the majority of costs to production departments. Once a service department's costs have been allocated, it is considered "closed" and cannot receive further allocations.

Question 3

One advantage of the step method is that all reciprocal services are recognized between service departments.In the step method,once the costs of a service department have been allocated,it is considered "closed" and cannot be the recipient in future allocations.

Accepted Answer

False

Question 4

The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.This is the definition of estimated net realizable value.

Accepted Answer

This is the correct definition of estimated net realizable value.

Question 5

Since by-products have minor sales value,alternative methods of accounting for them will not have a material effect on the financial statements.The sales value is immaterial,so the alternate results would be immaterial.

Accepted Answer

Since the sales value of by-products is immaterial, any alternative methods of accounting for them would also result in immaterial differences in the financial statements. Therefore, it is true that alternative methods would not have a material effect on the financial statements.

Question 6

One reason to allocate service department costs to user departments is to encourage the user departments to monitor their use of the service department costs.Allocating service department costs makes manufacturing managers aware of the support costs required to complete their manufacturing efforts as well as provide better product costing.

Accepted Answer

Allocating service department costs to user departments encourages accountability and helps managers make better decisions about resource allocation and cost control. It also provides more accurate product costing information, which is necessary for pricing products competitively and evaluating profitability.

Question 7

In deciding whether to outsource a service department or not,the cost of the service department should be estimated using the step method of allocation.The reciprocal method should be used as it is the most accurate method.

Accepted Answer

The statement is incorrect. While estimating the cost of a service department, various allocation methods can be used such as direct allocation, step-down method or reciprocal method. The choice of method depends on various factors such as the complexity of the cost structure and the nature of the service department. While the reciprocal method is considered the most accurate, it is also the most complex and time-consuming. Therefore, the choice of method should be based on a thorough analysis of the situation.

Question 8

Joint products are outputs from common inputs and a common production process.This is the definition of joint products.

Accepted Answer

This is the correct definition of joint products.

Question 9

With the reciprocal method,the total service department costs less the direct costs of the service department equals the cost allocated to the service department.Direct costs + costs allocated from other services = total cost.

Accepted Answer

The statement correctly describes the reciprocal method for allocating service department costs.

Question 10

Joint costs are processing costs incurred after the split-off point in a common production process.Joint costs are the costs that are incurred prior to reaching the split-off point.

Accepted Answer

Joint costs are processing costs incurred prior to reaching the split-off point in a common production process.

Question 11

In a sell-or-process-further decision,the common costs incurred prior to the spilt-off point are irrelevant.Common costs will be there whatever the end decision is.

Accepted Answer

Common costs are costs that are not specific to either the sell or the process further decision. They are incurred prior to the split-off point and cannot be assigned to a particular product or process. Therefore, they are irrelevant in the sell-or-process-further decision as they will be incurred regardless of which decision is made.

Question 12

The human resource department in a manufacturing company would be considered a service department.Human resources would be considered a support department for the manufacturing activities of the firm,and therefore a service department.

Accepted Answer

The human resource department provides support to the manufacturing activities of the company and serves as a service department. Therefore, option A is correct.

Question 13

In a sell-or-process-further decision,the additional costs incurred after the split-off point are irrelevant.These additional costs are incremental and would be relevant.

Accepted Answer

The answer of In a sell-or-process-further decision,the additional costs incurred...

Question 14

In general,it is better to use a product's market value at the split-off point than its estimated net realizable value in allocating joint costs.Actual market value is better than an estimate.

Accepted Answer

Using actual market value is more reliable and accurate than using an estimated net realizable value. The market value represents the actual value of the product in the market, and using it ensures that joint costs are allocated based on the actual value created by each product at the split-off point.

Question 15

The physical quantities method of allocating joint costs is often used when the output sales prices are highly volatile.In this instance,there would not be reliable sales values;physical values would be preferred.

Accepted Answer

When output sales prices are highly volatile, it is difficult to obtain reliable sales values. In such cases, physical quantities method where joint costs are allocated based on physical values is preferred.

Question 16

The physical quantities method allocates joint costs so that each joint product has the same gross margin as a percentage of sales.Each product has the same cost per pound (or foot,or gallon,etc).

Accepted Answer

The physical quantities method allocates joint costs based on the relative physical quantities of each product, not to ensure the same gross margin as a percentage of sales or the same cost per unit.

Question 17

One potential disadvantage of the reciprocal method is it could overstate the cost of running the organization's service departments.The reciprocal method is the most accurate method.

Accepted Answer

The statement in the question is false. The reciprocal method is one of the most accurate methods for allocating service department costs, but it can still potentially lead to an overstatement of those costs.

Question 18

If a company's two joint products can be sold at the split-off point,there is no reason for allocating the joint costs to the products.Just because they can be sold,doesn't mean that they are all sold.Inventory valuation would still be necessary.

Accepted Answer

Even if the joint products can be sold at the split-off point, it is necessary to allocate the joint costs to the products in order to determine the profitability of each product. This is important for decision making purposes such as product pricing, marketing, and production planning. Additionally, inventory valuation would still require allocation of joint costs to individual products.

Question 19

The direct method makes no cost allocations between or among service departments.All costs are allocated directly to the producing departments,as if service departments were not a user of services themselves.

Accepted Answer

The direct method only allocates service department costs directly to producing departments without making any allocations between or among service departments. Hence the statement is true.

Question 20

The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.If the products require further processing before they are marketable,it could be necessary to estimate the net realizable value at the split-off point.

Accepted Answer

The answer of The estimated net realizable value for a...

Quiz 11: Service Department and Joint Cost Allocation