Question 1

Which of the following steps is not involved in the ABC approach?

Accepted Answer

A)  Identify activities that cause costs to be incurred. 
B)  Allocate costs to products based on activity usage. 
C)  Group costs of activities into cost pools. 
D)  Improve processes based on benchmarking. 
A)  Identify activities that cause costs to be incurred. 
B)  Allocate costs to products based on activity usage. 
C)  Group costs of activities into cost pools. 
D)  Improve processes based on benchmarking.

Question 2

Vystar Credit Union has six service departments (human resources, duplicating, janitorial, accounting, graphic design, and food services) whose fixed costs are allocated to the company's two subsidiaries (Vystar Personal Banking and Vystar Business Banking) on the basis of their relative revenue. What type of costs will the president of Vystar Business Banking subsidiary perceive the allocated service department costs to be?

Accepted Answer

A)  Fixed costs 
B)  Opportunity costs 
C)  Direct costs 
D)  Variable costs 
A)  Fixed costs 
B)  Opportunity costs 
C)  Direct costs 
D)  Variable costs

Question 3

Freely Service provides residential and commercial monthly swimming pool cleaning services. Information on this service is as follows:
Service revenue $140,000
Direct materials 18,000
Direct labor 44,000
Estimated travel costs for the month total $2,340 and are allocated to each client based on miles driven to each pool cleaning. The company estimates it will clean 50 residential pools and 80 commercial pools per month with 1,200 total miles used for commercial pools and 2,400 total miles used for residential pools. Because commercial pools are much larger, they take 3 hours to clean, while residential pools take a half hour each. During the month, the actual mileage totaled 2,600 miles. How much is the rate at which travel costs will be allocated to residential pools?

Accepted Answer

A)  $0.65 
B)  $0.975 
C)  $18.00 
D)  $8.83 
A)  $0.65 
B)  $0.975 
C)  $18.00 
D)  $8.83

Question 4

Which of the following is not a criterion typically used to allocate indirect fixed costs?

Accepted Answer

A)  Ability to bear costs 
B)  Equity 
C)  Feasible outcomes 
D)  Relative benefits 
A)  Ability to bear costs 
B)  Equity 
C)  Feasible outcomes 
D)  Relative benefits

Question 5

Bayard Backup is a manufacturer of data storage devices. Bayard operates two service departments-maintenance and technology, and two production departments-assembly and testing. Maintenance costs are allocated on the basis of square footage occupied, and technology costs are allocated on the basis of the number of workstations. The following data relate to allocations of service department costs: $\begin{array}{lrr}&\text { Maintenance}&\text { Technology }&\text {Assembly }&\text {Testing }\\hline
\text { Service department costs } & \$ 400,000 & \$ 230,000 \
\text { Square footage } & 2,000 & 3,000&20,000&30,000 \
\text { Workstations } & 4 & 16&10&9
\end{array}$ How much maintenance costs will be allocated to the assembly department using the direct method?

Accepted Answer

A)  $160,000 
B)  $133,333 
C)  $266,667 
D)  $4,000 
A)  $160,000 
B)  $133,333 
C)  $266,667 
D)  $4,000

Question 6

Ernst & Gray, CPAs has three divisions: audit, tax, and business consulting. When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%. The fixed computer department costs are allocated based on computer needs. The variable costs of the computer department are allocated based on the minutes of computer time that each department uses. The computer division budget for fixed costs is $450,000, and the budget for variable costs is $145,600. The company anticipates using 520,000 minutes of computer time. What amount of variable costs will be allocated when a division uses a minute of computer time?

Accepted Answer

A)  $4.50 
B)  $2.80 
C)  $1.15 
D)  $0.28 
A)  $4.50 
B)  $2.80 
C)  $1.15 
D)  $0.28

Question 7

An allocation base

Accepted Answer

A)  is also called a cost objective. 
B)  is a characteristic that is the same for all cost drivers. 
C)  ideally uses a cause-and-effect relationship to the cost pool. 
D)  All of these answer choices are correct. 
A)  is also called a cost objective. 
B)  is a characteristic that is the same for all cost drivers. 
C)  ideally uses a cause-and-effect relationship to the cost pool. 
D)  All of these answer choices are correct.

Question 8

ZanaTech has an on-site cafeteria in which it provides free meals for employees. The company allocates the cost of the cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 15; polishing, 20; engraving, 10; and packaging, 15. There are 20 employees in the cafeteria. The cafeteria's costs are budgeted at $144,000 for the year. What amount of cafeteria cost will be allocated to the engraving department? Use 4 significant digits for calculations.

Accepted Answer

A)  $2,400 
B)  $24,000 
C)  $18,000 
D)  $14,400 
A)  $2,400 
B)  $24,000 
C)  $18,000 
D)  $14,400

Question 9

Which of the following is least likely to be a cost objective?

Accepted Answer

A)  Salaries such as those in the accounting and personnel departments 
B)  Individual products such as spades and mowers 
C)  Product lines such as loans and estate plans 
D)  Departments such as assembly and finishing 
A)  Salaries such as those in the accounting and personnel departments 
B)  Individual products such as spades and mowers 
C)  Product lines such as loans and estate plans 
D)  Departments such as assembly and finishing

Question 10

A batch-level activity is an activity that supports all other activities.

Accepted Answer

A) True 
 B)False

Question 11

Recker Recreational uses activity-based costing. The company produces wooden playground equipment. It has two models manufactured in its Texas plant-swings and slides. The estimated costs and expected activity for each of the overhead activity pools follow: $\begin{array}{lllrl}\text { Activity } & \text { Estimated } &\text { Expected Activity }\
\text { Cost Pool } & \text { Cost }&(\text { Hard-Cover }&\text { Soft-Cover }&\text { Total }\\hline
\text { Activity } 1 & \$ 15,000 & 800 & 700 & 1,500 \
\text { Activity 2 } & \$ 14,900 & 500 & 1,500 & 2,000 \
\text { Activity 3 } & \$ 27,600 & 800 & 400 & 1,200
\end{array}$ Which of the following is the rate for Activity 3 that will used to allocate costs to swings?

Accepted Answer

A)  $90 
B)  $12,000 
C)  $30 
D)  There is not enough information provided to determine the answer. 
A)  $90 
B)  $12,000 
C)  $30 
D)  There is not enough information provided to determine the answer.

Question 12

ZanaTech has an on-site cafeteria in which it provides free meals for employees. The company allocates the cost of the cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 15; polishing, 20; engraving, 10; and packaging, 15. There are 20 employees in the cafeteria. The cafeteria's costs are budgeted at $144,000 for the year. What amount of the cafeteria's cost will be allocated to the molding department?

Accepted Answer

A)  $27,000 
B)  $9,600 
C)  $2,400 
D)  $36,000 
A)  $27,000 
B)  $9,600 
C)  $2,400 
D)  $36,000

Question 13

A cost objective is the

Accepted Answer

A)  reason for allocating the cost. 
B)  basis on which costs are allocated. 
C)  product, service, or department that is to receive the allocation. 
D)  relative benefit received from using a resource. 
A)  reason for allocating the cost. 
B)  basis on which costs are allocated. 
C)  product, service, or department that is to receive the allocation. 
D)  relative benefit received from using a resource.

Question 14

Managers are correct when they perceive that almost all cost allocations are

Accepted Answer

A)  insignificant. 
B)  arbitrary. 
C)  designed to make them look bad. 
D)  unnecessary. 
A)  insignificant. 
B)  arbitrary. 
C)  designed to make them look bad. 
D)  unnecessary.

Question 15

When activity-based costing is implemented, the initial outcome is that

Accepted Answer

A)  the unit cost of all products will be higher. 
B)  the unit cost of all products will be lower. 
C)  the unit cost of low-volume products will be higher and the unit cost of high-volume products will be lower. 
D)  the unit cost of low-volume products will be lower and the unit cost of high-volume products will be higher. 
A)  the unit cost of all products will be higher. 
B)  the unit cost of all products will be lower. 
C)  the unit cost of low-volume products will be higher and the unit cost of high-volume products will be lower. 
D)  the unit cost of low-volume products will be lower and the unit cost of high-volume products will be higher.

Question 16

Dewey, Cheatham, and How, Attorneys-at-Law, specialize in three areas: criminal, civil, and family law. When specifications for a new IT system were established, the partners agreed to allocate fixed costs based on gigabytes needed by each department. The criminal law division needed 40% of the capacity, civil law needed 35%, and family law needed 25%. Variable costs for the IT department are allocated on the amount of bandwidth used by each division used. The IT department's budgeted monthly fixed costs are $640,000, and the budgeted monthly variable costs are $160,000. The firm estimates that 8,000,000 gigabytes of computer time will be used in June. During June, the family law division used 1,900,000 gigabytes of bandwidth. How much are total variable IT costs to be allocated to the family law division during June? Compute cost allocation rates to 3 significant digits.

Accepted Answer

A)  $160,000 
B)  $60,000 
C)  $40,000 
D)  $38,000 
A)  $160,000 
B)  $60,000 
C)  $40,000 
D)  $38,000

Question 17

Fox Hunting Gear manufactures two products: camouflage jackets and camouflage hats. The company makes 50,000 jackets and 20,000 hats each year. Information for overhead costs and for the two products appears below.
$\begin{array}{|l|c|c|c|c|}
\hline &&\text { Estimated }\&&\text { Total }\ \text { Activity }&\text { Driver }&\text { Overhead Cost }&\text { Jackets }&\text { Hats }\
\hline \text { Setups } & \text { \# of setups } & \$ 200,000 & 500 \text { setups } & 1,500 \text { setups } \
\hline \text { Ordering parts } & \text { \# of parts } & 300,000 & 60,000 \text { parts } & 40,000 \text { parts } \
\hline \text { Machining } & \text { \# of machine hours } & 600,000 & 12,000 \text { machine hrs. } & 6,000 \text { machine hrs. } \
\hline \text { Inspections } & \text { \# of inspections } & 400,000 & 10,000 \text { inspections } & 40,000 \text { inspections } \
\hline \text { Shipping } & \text { \# of shipments } & 300,000 & 10,000 \text { shipments } & 10,000 \text { shipments } \
\hline \text { Total overhead }&&\$1,800,000\
\hline
\end{array}$
What will be the overhead cost of each jacket if overhead is assigned using ABC?

Accepted Answer

A)  $159.33 per jacket 
B)  $100 per jacket 
C)  $47 per jacket 
D)  $17.20 per jacket 
A)  $159.33 per jacket 
B)  $100 per jacket 
C)  $47 per jacket 
D)  $17.20 per jacket

Question 18

Which one of the following lists the major steps in activity-based management in the correct order?

Accepted Answer

A)  Determine major activities, form cost pools, evaluate the performance of the activities, and identify ways to improve the activities 
B)  Determine major activities, identify resources used by each activity, evaluate the performance of the activities, and identify ways to improve the activities 
C)  Determine major activities, identify ways to improve the activities, evaluate the performance of the activities, and identify resources used by each activity 
D)  Determine major activities, evaluate the performance of activities, form cost pools, and identify ways to improve the activities 
A)  Determine major activities, form cost pools, evaluate the performance of the activities, and identify ways to improve the activities 
B)  Determine major activities, identify resources used by each activity, evaluate the performance of the activities, and identify ways to improve the activities 
C)  Determine major activities, identify ways to improve the activities, evaluate the performance of the activities, and identify resources used by each activity 
D)  Determine major activities, evaluate the performance of activities, form cost pools, and identify ways to improve the activities

Question 19

ZanaTech has an on-site cafeteria in which it provides free meals for employees. The company allocates the cost of the cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 15; polishing, 20; engraving, 10; and packaging, 15. There are 20 employees in the cafeteria. The cafeteria's costs are budgeted at $144,000 for the year. The actual cafeteria costs totaled $147,000 for the year. What is the total amount of the cafeteria's costs that will be allocated to the production departments?

Accepted Answer

A)  $108,000 
B)  $144,000 
C)  $147,000 
D)  None of these answer choices are correct. 
A)  $108,000 
B)  $144,000 
C)  $147,000 
D)  None of these answer choices are correct.

Question 20

What is the product, service, or department that is to receive the cost allocation called?

Accepted Answer

A)  Cost-plus recipient 
B)  Cost objective 
C)  Cost driver 
D)  Cost pool 
A)  Cost-plus recipient 
B)  Cost objective 
C)  Cost driver 
D)  Cost pool

Which of the following steps is not involved in the ABC approach?

Which of the following is not a criterion typically used to allocate indirect fixed costs?

An allocation base

Which of the following is least likely to be a cost objective?

A batch-level activity is an activity that supports all other activities.

A cost objective is the

Managers are correct when they perceive that almost all cost allocations are

When activity-based costing is implemented, the initial outcome is that

Which one of the following lists the major steps in activity-based management in the correct order?

What is the product, service, or department that is to receive the cost allocation called?

Managerial Accounting in the Information Age

Job-Order Costing for Manufacturing and Service Companies

Process Costing

Cost-Volume-Profit Analysis

Variable Costing

The Use of Cost Information in Management Decision Making

Pricing Decisions

Capital Budgeting Decisions

Budgetary Planning and Control

Standard Costs and Variance Analysis

Decentralization and Performance Evaluation

Statement of Cash Flows

Filters

Exam 6: Cost Allocation and Activity-Based Costing

Which of the following steps is not involved in the ABC approach?

Which of the following is not a criterion typically used to allocate indirect fixed costs?

An allocation base

Which of the following is least likely to be a cost objective?

A batch-level activity is an activity that supports all other activities.

A cost objective is the

Managers are correct when they perceive that almost all cost allocations are

When activity-based costing is implemented, the initial outcome is that

Which one of the following lists the major steps in activity-based management in the correct order?

What is the product, service, or department that is to receive the cost allocation called?

Managerial Accounting in the Information Age

Job-Order Costing for Manufacturing and Service Companies

Process Costing

Cost-Volume-Profit Analysis

Variable Costing

The Use of Cost Information in Management Decision Making

Pricing Decisions

Capital Budgeting Decisions

Budgetary Planning and Control

Standard Costs and Variance Analysis

Decentralization and Performance Evaluation

Statement of Cash Flows

Filters