Questions:
1. Describe the two-stage allocation process for assigning support service costs to products in a traditional manufacturing environment.
2. Why must support service costs be assigned to products for purposes of inventory valuation?
3. Explain how allocation of support service costs is useful for planning and control and in making pricing decisions.
4. Assume that a company has decided not to allocate any support service costs to producing departments. Describe the likely behavior of the managers of the producing departments. Would this be good or bad? Explain why allocation would correct this type of behavior.
5. Explain how allocating support service costs will encourage service departments to operate more efficiently.