Asked by Kamri Smith on Apr 24, 2024
Verified
Which of the following companies is following a policy with respect to the costs of service departments that is not recommended?
A) To charge operating departments with the depreciation of forklifts used at its central warehouse, Shalimar Electronics charges predetermined lump-sum amounts calculated on the basis of the long-term average use of the services provided by the warehouse to the various segments.
B) Manhattan Electronics uses the sales revenue of its various divisions to allocate costs connected with the upkeep of its headquarters building.
C) Rainier Industrial does not allow its service departments to pass on the costs of their inefficiencies to the operating departments.
D) Golkonda Refinery separately allocates fixed and variable costs incurred by its service departments to its operating departments.
Service Departments
Units within an organization that support the production process but do not directly engage in manufacturing activities.
Operating Departments
Operating departments are units within an organization directly involved in its primary revenue-generating activities, such as production or sales departments.
- Understand policies for service department cost allocation and evaluate their effectiveness.
Verified Answer
Learning Objectives
- Understand policies for service department cost allocation and evaluate their effectiveness.
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