1. Waterford Company maintains a cafeteria for its employees.

For June, variable food costs were

budgeted at $45 per employee based on a budgeted level of 200 employees in other departments.
During the month, an average of 190 employees worked in other departments and actual food costs
totaled $9,250. How much food cost should be charged to the other departments at the end of the
month for performance evaluation purposes?

A. $9,000
B. $9,250
C. $8,550
D. $9,737

190 employees × $45 per employee = $8,550

2. Poole Corporation's Maintenance Department provides services to the company's two operating
divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance
Department are budgeted based on the number of cases produced by the operating departments.
The fixed costs of the Maintenance Department are budgeted based on the number of cases
produced by the operating departments during the peak period. Data appear below:
Maintenance Department:

Budgeted variable cost $5 per case

Budgeted total fixed cost $ 558,000

Actual total variable cost $ 322,504

Actual total fixed cost $ 561,490

Paints Division:

Percentage of peak period capacity

required
30%

Budgeted cases 15,000

Actual cases 15,040

Stains Division:

Percentage of peak period capacity

required
70%

Budgeted cases 47,000

Actual cases 46,980

For performance evaluation purposes, how much Maintenance Department cost should be charged
to the Stains Division at the end of the year?

A. $669,623
B. $637,339 Stains Division
C. $625,500
Variable cost charges:
D. $657,584

$ 5 per case × 46,980 cases $ 234,900

Fixed cost charges:

70% × $ 558,000 390,600

Total Maintenance Department

charges
$ 625,500
3. The fixed costs of Black Company's personnel department are allocated to operating departments
on the basis of direct labor-hours. The following data have been provided:
Operating Department

X Y

Direct labor-hours — Long-run average 15,000 10,000

Direct labor-hours — Actual 10,000 6,000

The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in
order to support long-run average requirements. How much of this fixed cost should be charged to
Operating Department X at the end of the year for performance evaluation purposes?

A. $35,000
B. $33,600
C. $52,500
D. $22,400

($56,000 ÷ 25,000) × 15,000 = $33,600

4. Darren Corporation's Maintenance Department provides services to the company's two operating
divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance
Department are budgeted based on the number of cases produced by the operating departments.
The fixed costs of the Maintenance Department are budgeted based on the number of cases
produced by the operating departments during the peak period. Data appear below:
Maintenance Department:

Budgeted variable cost $2 per case

Budgeted total fixed cost $ 830,000

Paints Division:

Percentage of peak period capacity

required
30%

Actual cases 20,000

Stains Division:

Percentage of peak period capacity

required
70%

Actual cases 63,000

For performance evaluation purposes, how much Maintenance Department cost should be charged
to the Paints Division at the end of the year?

A. $298,800
B. $498,000
C. $289,000
D. $240,000

Paints Division
Variable cost charges:
$2 per case × 20,000 cases $ 40,000
Fixed cost charges:
30% × $830,000 249,000
Total Maintenance Department
charges
$ 289,000
5. The Document Creation Center (DCC) for Arlington Corporation provides photocopying and
document services for three departments in the Minneapolis office. The following budget has been
prepared for the year.
Available capacity 8,000,000 pages

Budgeted usage:

Software Development 1,600,000 pages

Training 3,000,000 pages

Management 2,400,000 pages

Cost equation $280,000 + $0.03 per page

If DCC uses a dual-rate for allocating its costs, how much cost will be allocated to the Software
Development Department, assuming the Software Development Department actually made
1,780,000 copies during the year?

A. $117,400
B. $115,700
C. $124,600
D. $129,376

(1,600,000 ÷ 7,000,000 × $280,000) + ($0.03 × 1,780,000) = $117,400

6. Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common costs
of the company's computer server network. The annual common costs are $2,400,000. You have
been provided with the following information for the upcoming year:
Connections Time on Network (hours)

Commercial 60,000 120,000

Retail 80,000 150,000

100,00 330,000
Consumer
0

The cost accountant determined $1,700,000 of the server network's costs were fixed and should be
allocated based on the number of connections. The remaining costs should be allocated based on
the time on the network. What is total server network cost allocated to the Consumer Division,
assuming the company uses dual-rates to allocate common costs?
Note: Do not round intermediate calculations. Round your final answer to the nearest whole
dollar.

A. $1,200,000
B. $1,093,333
C. $954,896
D. $750,000

(100,000 ÷ 240,000 × $1,700,000) + [330,000 × ($700,000 ÷ 600,000)] = $1,093,333

7. The Copy Department in the College of Business at State University provides photocopying
services for both the Marketing and Economics Departments. The following budget has been
prepared for the year.
Available 6,000,000 pages
capacity

Budgeted usage:

Marketing 3,600,000 pages

Economics 1,800,000 pages

Cost equation $120,000 + $0.025 per page

If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to
the Economics Department, assuming the Economics Department actually made 1,500,000 copies
during the year?

A. $77,500
B. $92,500
 C. $132,500
D. $112,500 (1,800,000 ÷ 5,400,000 × $120,000) + ($.025 × 1,500,000) = $77,500

8. Barrington Box Enterprises has two divisions, large and small, that share the common costs of the
company's communications network. The annual common costs are $4,500,000. You have been
provided with the following information for the upcoming year:
Calls Time on Network (hours)

Larg 100,000 120,000

e

Small 80,000 330,000

The cost accountant determined $2,700,000 of the communication network's costs were fixed and
should be allocated based on the number of calls. The remaining costs should be allocated based
on the time on the network. What is total communication network costs allocated to the Small Box
Division, assuming the company uses dual-rates to allocate common costs?

A. $2,520,000
B. $1,800,000
C. $1,320,000
D. $1,200,000

(80,000 ÷ 180,000 × $2,700,000) + (330,000 ÷ 450,000 × $1,800,000) = $2,520,000

9. The following is a summarized income statement for McClaron Manor Company's profit center
12608 for April:
Contribution Margin $ 175,000

Period Expenses $ 11,000

Manager' s Salary $ 2,000

Corporate Expense
Allocation
$ 8,000 $ (21,000)

Net Income $ 154,000

Which of the following amounts is most likely subject to the control of the profit center's manager?
(CMA adapted)

A. Contribution Margin of $175,000

B. Contribution Margin of $175,000 and Period Expenses of $11,000
C. Contribution Margin of $175,000 and Period Expenses of $13,000
 D. Contribution Margin of $175,000 and Period Expenses of $21,000

A profit center manager is responsible for revenues and expenses of the product or service, but not
for all the period costs.

10. The following is a summarized income statement for McClaron Manor Company's profit center
12608 for April:
Contribution Margin $ 182,000

Period Expenses $ 18,000

Manager' s Salary $ 2,700

Corporate Expense
Allocation
$ 8,700 $ (29,400)

Net Income $ 152,600

Which of the following amounts is most likely subject to the control of the profit center's manager?
(CMA adapted)

A. Contribution Margin of $182,000

B. Contribution Margin of $182,000 and Period Expenses of $18,000
C. Contribution Margin of $182,000 and Period Expenses of $20,700
D. Contribution Margin of $182,000 and Period Expenses of $29,400

A profit center manager is responsible for revenues and expenses of the product or service, but not
for all the period costs.

11. Barrington Box Enterprises has two divisions, large and small, that share the common costs of
the company's communications network. The annual common costs are $4,420,000. You have been
provided with the following information for the upcoming year:
Calls Time on Network (hours)

Larg 140,000 151,000

e

Small 120,000 274,000

What is the allocation rate for the upcoming year, assuming Barrington Box uses the single-rate
method and allocates common costs based on the number of calls?

A. $10.40
B. $13.09
C. $34.03
 D. $17.00

[$4,420,000 ÷ (140,000 + 120,000)] = $17.00

12. The Copy Department in the College of Business at State University provides photocopying
services for both the Marketing and Economics Departments. The following budget has been
prepared for the year.
Available 8,300,000 pages
capacity

Budgeted usage:

Marketing 5,500,000 pages

Economics 2,750,000 pages

Cost equation $ 177,000 + $ 0.060 per page

If the Copy Department uses a dual-rate for allocating its costs based on usage, how much cost will
be allocated to the Marketing Department?

A. $224,000
B. $330,000
C. $498,000
D. $448,000

(5,500,000 ÷ 8,250,000 × $177,000) + ($0.060 × 5,500,000) = $448,000

13. Mesa Telcom has three divisions, commercial, retail, and consumer, that share the common
costs of the company's computer server network. The annual common costs are $2,400,000. You
have been provided with the following information for the upcoming year:
Connections Time on Network (hours)

Commercial 69,000 102,000

Retail 59,000 120,000

112,00 378,000
Consumer
0

What is the allocation rate for the upcoming year, assuming Mesa Telcom uses the single-rate
method and allocates common costs based on the number of connections?
 A. $10.00
B. $13.26
C. $23.53
D. $34.78

[$2,400,000 ÷ (69,000 + 59,000 + 112,000)] = $10.00

14. The Document Creation Center (DCC) for Arlington Corporation provides photocopying and
document services for three departments in the Minneapolis office. The following budget has been
prepared for the year.
Available capacity 8,300,000 pages

Budgeted usage:

Software Development 1,900,000 pages

Training 3,300,000 pages

Management 2,700,000 pages

Cost equation $296,000 + $0.05 per page

If DCC uses a dual-rate for allocating its costs based on usage, how much cost will be allocated to
the Software Development Department?
Note: Do not round intermediate calculations. Round your final answer to the nearest whole
dollar.

A. $228,810
B. $102,380
C. $166,190
D. $415,000

(1,900,000 ÷ 7,900,000 × $296,000) + [$0.05 × 1,900,000] = $166,190

15. Darren Corporation's Maintenance Department provides services to the company's two operating
divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance
Department are budgeted based on the number of cases produced by the operating departments.
The fixed costs of the Maintenance Department are budgeted based on the number of cases
produced by the operating departments during the peak period. Data appear below:
Maintenance Department:

Budgeted variable cost $3 per case

Budgeted total fixed cost $ 841,000

Paints Division:

Percentage of peak period capacity

required
30%

Actual cases 22,000

Stains Division:

Percentage of peak period capacity

required
70%

Actual cases 65,000

For performance evaluation purposes, how much Maintenance Department cost should be charged
to the Paints Division at the end of the year?

A. $301,600
B. $479,700
C. $318,300
D. $341,000

Paints Division
Variable cost charges:
$3 per case × 22,000 cases $ 66,000
Fixed cost charges:
30% × $841,000 252,300
Total Maintenance Department
charges
$ 318,300
16. The fixed costs of Black Company's personnel department are allocated to operating
departments on the basis of direct labor-hours. The following data have been provided:

Operating Department

X Y

Direct labor-hours — Long-run

average
16,000 11,000

Direct labor-hours — Actual 11,000 7,000

The fixed costs of the personnel department are budgeted at $58,500 per year and are incurred in
order to support long-run average requirements. How much of this fixed cost should be charged to
Operating Department X at the end of the year for performance evaluation purposes?
Note: Do not round intermediate calculations.

A. $38,000
B. $36,000
C. $51,591
D. $24,750

($58,500 ÷ 26,000) × 16,000 = $36,000

17. Poole Corporation's Maintenance Department provides services to the company's two operating
divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance
Department are budgeted based on the number of cases produced by the operating departments.
The fixed costs of the Maintenance Department are budgeted based on the number of cases
produced by the operating departments during the peak period. Data appear below:
Maintenance Department:

Budgeted variable cost $6 per case

Budgeted total fixed cost $ 563,000

Actual total variable cost $ 327,504

Actual total fixed cost $ 566,490

Paints Division:

Percentage of peak period capacity

required
25%

Budgeted cases 20,000

Actual cases 20,040

Stains Division:

Percentage of peak period capacity

required
75%

Budgeted cases 52,000

Actual cases 51,980

For performance evaluation

purposes, how much Maintenance
Stains Division
Department cost should be charged to the
Stains Division at the end of the year?
Variable cost charges:

A. $736,868 $ 6 per case × 51,980 cases $ 311,880

B. $736,748
Fixed cost charges:

75% × $ 563,000 422,250

Total Maintenance Department

charges
$ 734,130
 C. $734,130
D. $734,250

18. Waterford Company maintains a cafeteria for its employees. For June, variable food costs were
budgeted at $65 per employee based on a budgeted level of 200 employees in other departments.
During the month, an average of 190 employees worked in other departments and actual food costs
totaled $13,250. How much food cost should be charged to the other departments at the end of the
month for performance evaluation purposes?

A. $13,000
B. $13,250
C. $12,350
D. $13,947

190 employees × $65 per employee = $12,350

19. Which one of the following firms is likely to experience dysfunctional motivation on the part of its
managers due to its allocation methods? (CMA adapted)

A. To allocate depreciation of forklifts used by workers at its central warehouse, Amir

Electronics uses predetermined amounts calculated on the basis of the long-term average
use of the services provided by the warehouse to the various segments.

B. Seattle Electronics uses the sales revenue of its various divisions to allocate costs
connected with the upkeep of its headquarters building. It also uses ROI to evaluate
the divisional performance.

C. Rose Industrial does not allow its service departments to pass on their cost overruns to
production departments.

D. Xi Enterprises' management information system (MIS) is operated out of headquarters and

serves its various divisions. Xi's allocation of MIS-related costs to its divisions is limited to
costs the divisions will incur if they were to outsource their MIS needs.

Allocating on the basis of sales revenue often creates dysfunctional behavior.

20. The Sarbanes-Oxley Act of 2002 requires that management of publicly traded companies:

A. use investment centers to evaluate top managers.

B. report on the adequacy of the company's internal controls over financial reporting.
C. compensate managers with fixed compensation plans only.
D. eliminate stock options for managerial compensation.