Question

Which statement is not correct? a)The actual cost of a service department should be charged to operating departments. b)The fixed costs of service departments should be charged in lump-sums to each operating department in proportion to their peak-period needs or long-run average needs. c)Variable and fixed service department costs should be charged separately to operating departments.

Answer 1

A) The actual cost of a service department should be charged to operating departments.

Step-by-step explanation:

The correct sentence would be: The budgeted cost of a service department should be charged to operating departments.

Fixed costs are assigned in advance, so they are budgeted. They represent the costs of making the production facilities available for use, e.g. machinery, buildings, etc. They should always be charged in predetermined lump sums to each operating department.

When a service department starts to operate, its fixed costs should be determined by the needs of the department. So the costs should be divided in proportion to the productive capacity of each department.

Also fixed costs should be fixed and not vary from period to period.