Which of the Following Companies Is Following a Policy with Respect

question 50

Multiple Choice

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.

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Definitions:

Periodic FIFO

Periodic FIFO (First-In, First-Out) is an inventory costing method used to calculate the cost of goods sold, assuming that the oldest inventory items are sold first.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding new purchases to the beginning inventory and subtracting the cost of goods sold.

Inventory Costing

The process of assigning costs to inventory items and determining the cost of goods sold.

Understated

Describes a situation where figures or estimates are reported lower than they actually are, leading to inaccuracies in financial or data reporting.