Question 1

The step method recognises some interaction between support departments but not all because it only allocates support department costs in one direction.

Accepted Answer

A) True 
 B)False

Question 2

The reciprocal method of allocating support departments uses simultaneous equations to mathematically allocate costs between support departments.

Accepted Answer

A) True 
 B)False

Question 3

The indirect cost rate is determined by dividing the budgeted indirect cost by the budgeted cost driver usage in each indirect cost pool.

Accepted Answer

A) True 
 B)False

Question 4

The step down method requires a ranking of support departments based on the amount of service provided to other support departments.

Accepted Answer

A) True 
 B)False

Question 5

Jones Plumbing estimates that its overhead costs for the year will be $800,000 and it has decided to use direct labour hours as the cost driver. Its mark-up is 20% on cost. If a job for Martin Z used $800 of direct materials and 5 labour hours at $50 per hour how much will Jones Plumbing charge Martin Z?

Accepted Answer

A)  $960 
B)  $800 
C)  $2,460 
D)  cannot be calculated from the information given 
A)  $960 
B)  $800 
C)  $2,460 
D)  cannot be calculated from the information given

Question 6

Direct costs do not have a cause and effect relationship with the cost object.

Accepted Answer

A) True 
 B)False

Question 7

Regardless of method adopted the first step in allocating support department costs to operating departments is to choose the allocation basis.

Accepted Answer

A) True 
 B)False

Question 8

Paws Pet Resort and Spa is located in Christchurch. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is the total cost of the grooming product line, which of the following is a direct cost?

Accepted Answer

A)  Front office staff salaries 
B)  Labour cost of employees who groom pets 
C)  Public liability insurance. 
D)  Rent on the premises. 
A)  Front office staff salaries 
B)  Labour cost of employees who groom pets 
C)  Public liability insurance. 
D)  Rent on the premises.

Question 9

Cost benefit analysis is used to determine whether a cost object has made use of a particular resource.

Accepted Answer

A) True 
 B)False

Question 10

In relation to product costing the indirect cost rate is:

Accepted Answer

A)  the rate used to assign indirect costs to the cost object 
B)  added to direct costs to calculate the full product cost 
C)  the input or activity that causes changes in total costs for a cost object 
D)  the method used to allocate the costs of each support department to the operating departments 
A)  the rate used to assign indirect costs to the cost object 
B)  added to direct costs to calculate the full product cost 
C)  the input or activity that causes changes in total costs for a cost object 
D)  the method used to allocate the costs of each support department to the operating departments

Question 11

A cost driver or allocation base provides a measure of activity that explains the cost object's use of the indirect cost.

Accepted Answer

A) True 
 B)False

Question 12

Before determining whether a cost is direct or indirect it is necessary to know what the cost object is.

Accepted Answer

A) True 
 B)False

Question 13

The first step in allocating indirect costs is to calculate the indirect cost rate.

Accepted Answer

A) True 
 B)False

Question 14

The cost driver that is a volume based cost driver is:

Accepted Answer

A)  number of units 
B)  number of set-ups 
C)  number of employees 
D)  all are volume based cost drivers 
A)  number of units 
B)  number of set-ups 
C)  number of employees 
D)  all are volume based cost drivers

Question 15

One limitation of support department cost allocations is that it is subject to judgement when making decisions about allocation bases and the allocation method.

Accepted Answer

A) True 
 B)False

Question 16

The department which provides the least amount of services to other support departments should be allocated first in the step down method.

Accepted Answer

A) True 
 B)False

Question 17

To be consistent in the cost assignment process the same cost driver must be chosen for each indirect cost pool.

Accepted Answer

A) True 
 B)False

Question 18

Indirect costs are:

Accepted Answer

A)  costs that it is impossible to trace to a cost object 
B)  costs that cannot be traced to a cost object in an economic manner 
C)  also known as overhead costs. 
D)  B and C 
A)  costs that it is impossible to trace to a cost object 
B)  costs that cannot be traced to a cost object in an economic manner 
C)  also known as overhead costs. 
D)  B and C

Question 19

The reason for allocating indirect costs is:

Accepted Answer

A)  to set product prices 
B)  to comply with external reporting requirements 
C)  to help with making decisions about which products to produce 
D)  all of the above 
A)  to set product prices 
B)  to comply with external reporting requirements 
C)  to help with making decisions about which products to produce 
D)  all of the above

Question 20

The three methods of allocating support department costs to operating departments are called the direct method, the step down method and the proportional method.

Accepted Answer

A) True 
 B)False

The step method recognises some interaction between support departments but not all because it only allocates support department costs in one direction.

The reciprocal method of allocating support departments uses simultaneous equations to mathematically allocate costs between support departments.

The indirect cost rate is determined by dividing the budgeted indirect cost by the budgeted cost driver usage in each indirect cost pool.

The step down method requires a ranking of support departments based on the amount of service provided to other support departments.

Direct costs do not have a cause and effect relationship with the cost object.

Regardless of method adopted the first step in allocating support department costs to operating departments is to choose the allocation basis.

Cost benefit analysis is used to determine whether a cost object has made use of a particular resource.

In relation to product costing the indirect cost rate is:

A cost driver or allocation base provides a measure of activity that explains the cost object's use of the indirect cost.

Before determining whether a cost is direct or indirect it is necessary to know what the cost object is.

The first step in allocating indirect costs is to calculate the indirect cost rate.

The cost driver that is a volume based cost driver is:

One limitation of support department cost allocations is that it is subject to judgement when making decisions about allocation bases and the allocation method.

The department which provides the least amount of services to other support departments should be allocated first in the step down method.

To be consistent in the cost assignment process the same cost driver must be chosen for each indirect cost pool.

Indirect costs are:

The reason for allocating indirect costs is:

The three methods of allocating support department costs to operating departments are called the direct method, the step down method and the proportional method.

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters

Exam 3: A Costing Framework and Cost Allocation

The step method recognises some interaction between support departments but not all because it only allocates support department costs in one direction.

The reciprocal method of allocating support departments uses simultaneous equations to mathematically allocate costs between support departments.

The indirect cost rate is determined by dividing the budgeted indirect cost by the budgeted cost driver usage in each indirect cost pool.

The step down method requires a ranking of support departments based on the amount of service provided to other support departments.

Direct costs do not have a cause and effect relationship with the cost object.

Regardless of method adopted the first step in allocating support department costs to operating departments is to choose the allocation basis.

Cost benefit analysis is used to determine whether a cost object has made use of a particular resource.

In relation to product costing the indirect cost rate is:

A cost driver or allocation base provides a measure of activity that explains the cost object's use of the indirect cost.

Before determining whether a cost is direct or indirect it is necessary to know what the cost object is.

The first step in allocating indirect costs is to calculate the indirect cost rate.

The cost driver that is a volume based cost driver is:

One limitation of support department cost allocations is that it is subject to judgement when making decisions about allocation bases and the allocation method.

The department which provides the least amount of services to other support departments should be allocated first in the step down method.

To be consistent in the cost assignment process the same cost driver must be chosen for each indirect cost pool.

Indirect costs are:

The reason for allocating indirect costs is:

The three methods of allocating support department costs to operating departments are called the direct method, the step down method and the proportional method.

The Role of Accounting Information in Management Decision Making

Cost Concepts, Behaviour and Estimation

Costvolumeprofit Cvp Analysis

Planning Budgeting and Behaviour

Operational Budgets

Job and Process Costing Systems

Flexible Budgets, Standard Costs and Variance Analysis

Variance Analysis: Revenue and Cost

Activity Analysis: Costing and Management

Relevant Costs for Decision Making

Strategy and Control

Capital Budgeting and Strategic Investment Decisions

The Strategic Management of Costs and Revenues

Strategic Management Control: a Lean Perspective

Responsibility Accounting, Performance Evaluation and Transfer Pricing

The Balanced Scorecard and Strategy Maps

Rewards, Incentives and Risk Management

Sustainability Management Accounting

Filters