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cost-allocation based would the manager of the Individual Department

Use the following to answer questions questions below:

Cretian Credit Checks produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.

Allocation base Individual Corporate
Data purchased $40,000 $80,000
Research hours 24,000 30,000
Interview hours 1,000 10,000
Number of reports 16,000 3,000

Which cost-allocation based would the manager of the Individual Department prefer the most?
A) Data purchased
B) Research hours
C) Interview hours
D) Number of reports

The manager of the Corporate Report Department would least prefer which method of allocation?
A) Data purchased
B) Research hours
C) Interview hours
D) Number of reports

If service costs are allocated according to the number of reports, the service department cost to be allocated to the Individual report department will be:
A) $2,694,737
B) $505,263
C) $1,066,667
D) $290,909

If service department costs are allocated by data purchased, the Corporate report department will receive an allocation of:
A) $1,777,778
B) $1,066,667
C) $505,263
D) $2,133,333

Using the high-low method, which of the following could be used to calculate the intercept?
A) Total cost at highest cost driver level - (Variable cost per unit times the highest level).
B) Total cost at lowest cost driver level - (Variable cost per unit times the lowest level).
C) Either of the above.
D) Neither of the above.

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Solution Summary

The solution determines which cost allocation based would the managers of a individual department prefer the most.

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