(Appendix 12B)If a portion of the actual cost incurred by a service department is not charged to operating departments, then at the end of the period, this uncharged cost should be:
A)allocated equally between the other departments.
B)allocated between the other departments in proportions to budgeted activity.
C)treated as a variance of the service department.
D)treated as a variance of the other departments.

Question

Quizplus · Accepted Answer

If a portion of the actual cost incurred by a service department is not charged to operating departments, it is treated as an unallocated cost. This unallocated cost is treated as a variance of the service department, as it is a deviation from the planned or budgeted cost of the service department. It is not appropriate to allocate the uncharged cost equally or in proportion to budgeted activity among other departments, as it would distort the actual cost incurred by each department. Similarly, it is not appropriate to treat it as a variance of the other departments, as it is not related to their performance or cost control.

(Appendix 12B)If a Portion of the Actual Cost Incurred by a Service