The Following List Includes Descriptions of the Steps in the Six-Step

question 71

Multiple Choice

The following list includes descriptions of the steps in the six-step process to allocate support department costs to production departments. Which of the following descriptions is incorrectly paired to the step number?

• A)Step 1: Apply production department costs to products.
• B)Step 2: Select a cost driver for each department.
• C)Step 3: Determine the usage of the support department cost river by each department.
• D)Step 4: Determine the percentage usage of support department cost drivers by each department.

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Definitions:

Constant Growth DDM

A dividend discount model that assumes dividends will continue to increase at a constant growth rate indefinitely, used to evaluate the price of a stock.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends and without voting rights.

Plowing Back

The reinvestment of earnings by a company back into its own operation or projects, also known as retained earnings.

ROE

Return on Equity, a financial ratio that measures the profitability of a business in relation to shareholder’s equity, indicating how well a company uses investments to generate earnings growth.