Week 8 - Allocating Service Department Costs

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Author:
honestkyle
ID:
287930
Filename:
Week 8 - Allocating Service Department Costs
Updated:
2014-11-02 23:03:59
Tags:
ACC6902
Folders:
ACC6902
Description:
Allocating Service Department Costs
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  1. What are examples of Service Departments in a hospital setting?
    • Hospital maintenance
    • Personnel department
    • Hospital cafeteria
    • Housekeeping
  2. What are examples of Production Departments in a hospital setting?
    • Maternity ward
    • Intensive care unit
    • Surgery
  3. What are examples of Service Departments in a manufacturing setting?
    • Maintenance
    • Production setup
    • Production scheduling
    • Engineering
  4. What are examples of Production Departments in a manufacturing setting?
    • Casting
    • Machining
    • Assembly
    • Packing
  5. What are the objectives of service department cost allocation?
    • Increase the accuracy of product costing (financial accounting)
    • Increase managerial motivation/effort
    • Provide incentives to increase goal congruency
    • Fairly assess managerial performance
  6. What is the Direct Method in cost allocation?
    The direct method ignores the services provided to the service departments and allocates all costs to the production departments.
  7. What is the Sequential Method (step or step-down method) in cost allocation?
    • 1. A service department is chosen to start the method.
    • 2. This department allocates its costs to all other departments.
    • 3. The method moves on to the next service department and allocates all its costs to the remaining departments, excluding those service departments whose costs have already been allocated.
  8. What is the Reciprocal Method in cost allocation?
    • The reciprocal method has two steps.
    • The first step computes the reciprocal cost of each service department. The second step uses each service department's reciprocal cost to allocate its costs.
  9. Using a hospital setting containing service departments (administrativemaintenance) and production departments (medical and surgical), how does the direct method work?
    • The administrative department allocates all its costs to the medical and surgical departments.
    • The maintenance department allocates all its costs to the medical and surgical departments.
  10. Using a hospital setting containing service departments (administrative, maintenance) and production departments (medical and surgical), how does the sequential method work?
    • The administrative department allocates its costs to the maintenance department.
    • The maintenance department allocates its costs to the medical and surgical departments.
  11. Using a hospital setting containing service departments (administrative, maintenance) and production departments (medical and surgical), how does the reciprocal method work?
    • Both the administrative and maintenace departments' costs to eachother are represented using algebraic equations.
    • The variables representing each service department are substituted and solved for.

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