Exam 9: Cost Allocations

Allocated costs equals:

Tire Town has two product lines of tires currently on the manufacturing floor.The product line managers provided the following information concerning the fixed overhead cost and production: Total fixed costs to be allocated: $4,322,500 Standard Tire: 20,000 tires produced with $975,000 of direct labor cost Deluxe Tire: 15,000 tires produced with $1,300,000 of direct labor cost Which one of the following is a correct amount to be allocated to one of the two types of tires?

An example of organizations using allocated costs to justify prices is when a hospital negotiates rates with insurance companies and other payers.

Some firms refer to the overhead rate as the burden because they charge, or burden, each product with this amount.

Marquez, Inc.noted that its sales volume was less than its production volume for the month of March.Which one of the following is correct when comparing absorption costing and variable costing?

Suppliers often prefer cost-plus contracts when there is uncertainty about the final cost or project success, as it allows them to share the risk of cost overruns with the customer.

Because indirect manufacturing costs are not traceable to individual products, their cost is allocated only to period expenditures.

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

Brown Corporation produced 2,200 units during the most recent period.Brown's costs were as follows: Direct material \ 1,000 Direct labor 2,000 Variable manufacturing overhead 500 Variable marketing and sales 300 Fixed manufacturing overhead 900 Fixed marketing and sales 400 If Brown uses absorption costing, what amount per unit would be included in ending inventory?

Which of the following is not a common reason to use allocations:

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

Which of the following is not an example of a long-term decision?

The allocation rate is calculated by:

The amount of cost allocated to a particular cost object depends on:

Profit margin equals:

When firms use allocated costs to make decisions, the quality of their decisions depend on how well the allocation estimates the capacity cost associated with the various options.

When allocating costs to value inventory, what is the underlying reason why firms allocate rather than directly measure capacity costs?

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

On an absorption costing income statement, which of the following correctly determines gross margin?

The budget analyst for Tire Town determined that the volume of tires sold for each product line is the best cost driver for the fixed marketing and administrative costs related to its two tire models.How would you determine the total allocated cost to each of two models of tires for marketing and administrative costs?