When Allocating Service Department Costs, Companies Should Use

question 67

Multiple Choice

When allocating service department costs, companies should use:

• A) actual costs rather than budgeted costs, and separate rates for variable and fixed costs.
• B) budgeted costs rather than actual costs, and separate rates for variable and fixed costs.
• C) budgeted costs rather than actual costs, and a rate that combines variable and fixed costs.
• D) actual costs rather than budgeted costs, and a rate that combines variable and fixed costs.
• E) a rate that is based on matrix theory.

---

Definitions:

Facility-level

Pertains to costs and activities that support the entire organization or operation as a whole, not tied to a specific product or department.

Assembling

The process of combining components or elements to form a complete item or system.

Unit-level Activity

Activities that are performed each time a unit is produced, directly associated with the production of units.

Manufacturing Overhead Costs

Expenses related to the production process that are not directly tied to the product, such as rent, utilities, and salaries of managers.