Problem:
Auburn Banking and Loan Company has six service departments-human resources, duplicating, janitorial, accounting, graphic design, and food services-whose costs are allocated to the company's two subsidiaries, Auburn Personal Banking and Auburn Business Banking, on the basis of their relative sales.
Required
Question 1: Suppose you are the president of Auburn Business Banking. Will you perceive the allocated service department costs to be fixed costs, variable costs, or mixed costs?
Question 2: In performing incremental analysis related to expanding or contracting her business, will the president of Auburn Business Banking tend to overestimate or underestimate incremental costs? Explain.
Note: Please provide through step by step calculations.