Morningside Company Has Two Service Departments (Maintenance and Human Resources)

question 20

Multiple Choice

Morningside Company has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing) . The two service departments service the production departments as well as each other, and studies have shown that Maintenance provides the greatest amount of service. On the basis of this information, which of the following cost allocations would likely occur under the step-down method?

• A)Machining cost would be allocated to Assembly.
• B)Maintenance cost would be assigned to the Finishing Department only.
• C)Maintenance cost would be assigned to the Human Resources Department only.
• D)Human Resources cost would be allocated to Maintenance.
• E)Maintenance cost would be allocated to both Finishing and Human Resources.

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Definitions:

Bond Prices

The market value of a bond, which can fluctuate based on interest rates, the bond’s credit quality, and other factors.

Opportunity Cost

Cost associated with opportunities forgone when a firm’s resources are not put to their best alternative use.

Projected Net Present Value

An estimation of the present value of an investment's future net cash flows minus the initial investment cost.

Capital

Financial assets or the financial value of assets, such as cash or goods, used to generate income or wealth.