Question : Objective 15.4 1) A cost of operating a facility, department, activity : 1211847

Objective 15.4

1) A cost of operating a facility, department, activity area, or like cost object that is shared by two or more users is called a ________.

A) combined cost

B) distinct cost

C) fixed cost

D) common cost

2) Under the stand-alone method of allocating common costs ________.

A) the individual users of a cost object are ranked in the order of users least responsible for the common cost and then uses this ranking to allocate cost among those users

B) disputes can arise over who is the primary user

C) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs

D) the individual users of a cost object are ranked in the order of users most responsible for the common cost and then uses this ranking to allocate cost among those users

3) Under the incremental method of allocating common costs ________.

A) the parties are interested in being viewed as primary users

B) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs

C) the first-incremental user bears a higher proportion of the cost in comparison with the primary user

D) the primary user bears the maximum of the total cost

Answer the following questions using the information below:

Emrald Corp currently uses a manufacturing facility costing $500,000 per year; 90% of the facility’s capacity is currently being used. A start-up business has proposed a plan that would utilize the other 10% of the facility and increase the overall costs of maintaining the space by 5%.

4) If the stand-alone method were used, what amount of cost would be allocated to the start-up business?

A) $48,000

B) $50,000

C) $50,500

D) $52,500

5) If the incremental method were used, what amount of cost would be allocated to the start-up business?

A) $40,000

B) $50,000

C) $46,000

D) $42,000

Answer the following questions using the information below:

Harbor Corp currently leases a corporate suite in an office building for a cost of $280,000 a year. Only 80% of the corporate suite is currently being used. A start-up business has proposed a plan that would use the other 20% of the suite and increase the overall costs of maintaining the space by $20,000.

6) If the stand-alone method were used, what amount of cost would be allocated to the start-up business?

A) $70,000

B) $66,000

C) $60,000

D) $74,000

7) If the incremental method were used, what amount of cost would be allocated to the start-up business?

A) $20,000

B) $300,000

C) $60,000

D) $75,000

8) The stand-alone method of allocating determines the weights for cost allocation by considering each user of the cost as a separate entity.

9) Under the incremental method, the primary user usually receives the highest allocation of the common costs.

10) If the incremental users are newly formed companies or subunits, the incremental method may decrease their chances for short-run survival by assigning them a high allocation of the common costs.