Question

A soft drink bottler incurred the following factory utility cost: $9,246 for 5,200 cases bottled and $8,997 for 4,900 cases bottled. Factory utility cost is a mixed cost containing both fixed and variable components. The variable factory utility cost per case bottled is closest to:

Select one:

a. $1.81

b. $0.83

c. $1.78

d. $1.84

The step-down method of allocating service department costs:

Select one:

a. ignores some interdepartmental services.

b. is a simpler allocation method than the direct method.

c. is a less accurate method of allocation than the direct method.

d. can't be used when a company has more than two service departments.

Answer 1

A. Variable Cost = Change in Production / Change in Cost


    =249   (9246 -8997) / 300 (5200-4900 )

                          = $ 0.83

Therefor Option b = $ 0.83 is correct answer.

B. The step-down method of allocating service department costs ignores some interdepartmental services.

In Step down method the cost of most serviceable department is first, apportioned to other service departments and production departments. The next service department is taken up and its cost is apportioned and this process is going on till the cost of last service department is apportioned.

In this method ignores some interdepartmental services.

There for Option A is Correct answer.