Tec-Pro Company Has Two Support Departments (S1 and S2) and Two

question 81

Multiple Choice

Tec-Pro Company has two support departments (S1 and S2) and two producing departments (P1 and P2) . Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet. Data on direct department costs, number of employees, and space occupied are as follows: $\begin{array}{lrrrr}&S1&S2&P1&P2\\\text { Direct dept. costs } & \$ 7,500 & \$ 11,000 & \$ 27,500 & \$ 30,000 \\\text { Number of employees } & 10 & 5 & 20 & 25 \\\text { Space occupied (sq. ft.) } & 1,000 & 500 & 1,500 & 2,500\end{array}$ When Tec-Pro uses the sequential method, the support department allocated first is the one with the highest percentage of interdepartmental service. The choice of the department allocated first is determined by the comparison of the following ratio for S1 and S2, respectively:

• A)5/50; 1,000/5,000
• B)5/60; 1,000/5,500
• C)10/50; 1,000/5,000
• D)10/55; 500/4,500

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Definitions:

APT

The Arbitrage Pricing Theory, a multifactor model used to determine asset returns based on the relationship between a financial asset's expected return and its risks.

Hedge Portfolios

Investment portfolios designed to reduce the risk of adverse price movements in an asset, often by using derivatives such as options and futures.

Risk Premiums

The extra return expected by investors for taking on the risk of an investment compared to a risk-free asset.

Mean-variance Efficient

A portfolio that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.