27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Service department charges

 The Customer Service Department of Door Industries Inc. asked the Publications Department to prepare a brochure for its training program. The Publications Department delivered the brochures and charged the Customer Service Department a rate that was 25% higher than could be obtained from an outside printing company. The policy of the company required the Customer Service Department to use the internal publications group for brochures. The Publications Department claimed that it had a drop in demand for its services during the fiscal year, so it had to charge higher prices in order to recover its payroll and fixed costs.

 Should the cost of the brochure be transferred to the Customer Service Department in order to hold the Customer Service Department head accountable for the cost of the brochure? What changes in policy would you recommend?

To determine

Service department charges: These are the indirect expenses incurred by profit center. These are charged for the services received by the department or division, based on the activity base of the service department.

To discuss: Whether the cost of brochure should be added to the CS Department and make it accountable for the cost, and give recommendations for the changes in the policy

The head of the CS Department should not be held responsible for the cost of brochures because neither the department nor the head is responsible are responsible for the source of the service delivered. The head and the department are responsible only for performance of the service. Since it is the policy of the company to use the internal group, CS Department had to buy the services of the P Department at a higher cost...

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