Exam 9: Cost Allocations: Theory and Applications

The following information is available for the Downtown Furniture Company which produces two types of tables. Management feels that the fixed manufacturing costs should be allocated based on direct labor costs and fixed administrative costs should be allocated based on units sold. The rate at which fixed manufacturing costs which should be allocated is: (rounded)

Grey Corporation produces mattresses. If grey produces more units than it sells during a period, then reported income using absorption costing will be:

One reason why capacity costs should be allocated among products is that:

The following information is available for the Rollin' Baby Company which produces two types of strollers, standard and deluxe. If the company allocates their fixed costs based on direct labor dollars, the profit before tax for the standard and deluxe product line, respectively, would be:

Allocated costs equals:

Which of the following is not a common reason to use allocations: a. To justify costs and reimbursements. B) To increase net income. C) To justify prices. D) If there is uncertainty about a project's success. E) All of the above are reasons to use allocations.

Firms must prepare income statements and balance sheets in accordance with Generally Accepted Accounting Principles which requires firms to use:

At the end of the accounting period, the cost of goods sold account and the finished goods inventory account will include fixed manufacturing costs.