Question 1

The advantage of allocating budgeted rather than actual service department costs is that

Accepted Answer

A) managers are not motivated to evaluate the charges. 
B) only one cost pool is necessary. 
C) service departments cannot pass on the costs of inefficiencies and waste. 
D) this practice is acceptable under GAAP. 
A) managers are not motivated to evaluate the charges. 
B) only one cost pool is necessary. 
C) service departments cannot pass on the costs of inefficiencies and waste. 
D) this practice is acceptable under GAAP.

Question 2

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

Question 3

Cost allocation methods that provide the most accurate full cost information for financial reporting, also provide the most accurate information for cost-plus contracts.

Accepted Answer

A) True 
 B)False

Question 4

When fixed costs are unitized, they

Accepted Answer

A) are stated on a per unit basis. 
B) may appear to remain the same in total at all levels of activity. 
C) may cause managers to use volume-related allocation. 
D) All of these answer choices are correct. 
A) are stated on a per unit basis. 
B) may appear to remain the same in total at all levels of activity. 
C) may cause managers to use volume-related allocation. 
D) All of these answer choices are correct.

Question 5

Maintenance cost is allocated to Wakshaw's three producing departments based on the machine hours used in each department.The maintenance cost expected for June is $200,000.The three departments had the following usage for June: $\begin{array}{lrr}&\text { Meek }&\text { Mild }\
\text { Sales } & \$ 600,000 & \$ 400,000 \
\text { Direct materials } & \$ 100,000 & \$ 120,000 \
\text { Direct labor cost } & \$ 108,000 & \$ 180,000 \
\text { Labor hourly cost } & \$ 12,00 & \$ 12,00
\end{array}$ How much maintenance cost should be allocated to the fabrication department for June?

Accepted Answer

A) $60,000 
B) $100,000 
C) $66,667 
D) $6,000 
A) $60,000 
B) $100,000 
C) $66,667 
D) $6,000

Question 6

Fifth Third Bank is a banking services company that offers several different types of checking accounts.The bank has recently adopted an activity-based costing system to assign costs to its checking accounts.The following data relate to the Mind Your Money checking accounts and the ABC cost pools:
Annual number of accounts = 60,000 accounts $\begin{array}{lrl}\text { Cost Pool } & \text { Cost } & \text { Cost Drivers }\\hline
\text { Returned check costs } & \$ 3,000,000 & \text { Number of returned checks } \
\text { Account reconciliation costs } & 60,000 & \text { Number of account reconciliation requests } \
\text { New account setup } & 650,000 & \text { Number of new accounts } \
\text { Archive requests } & 400,000 & \text { Number of archive requests } \
\text { Web site costs } & 195,000 & \text { Per account type }\\text { Total checking account costs }&\$4,305,000
\end{array}$

$\text { Annual activity information related to cost drivers: }$

$\begin{array}{llr}\text {Cost Pool }&\text { All Products}&\text { Mind Your Monev Checking}\\hline
\text { Returned checks } & 200,000 \text { returned checks } & 18,000 \
\text { Account reconciliation costs } & 3,000 \text { reconciliation requests } & 420 \
\text { New account setups } & 60,000 \text { new accounts } & 15,000 \
\text { Archive requests } & 100,000 \text { archive requests } & 60,000 \
\text { Web site costs } & 10 \text { types of accounts } & 1
\end{array}$
How much is the rate to be used to apply the cost of new accounts to each Mind Your Money checking account?

Accepted Answer

A) $10.83 
B) $43.33 
C) $71.75 
D) $60.39 
A) $10.83 
B) $43.33 
C) $71.75 
D) $60.39

Question 7

Which of the following is a grouping of individual costs whose total is allocated using one allocation base?

Accepted Answer

A) Cost objective 
B) Cost pool 
C) Direct cost 
D) Cost driver 
A) Cost objective 
B) Cost pool 
C) Direct cost 
D) Cost driver

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

Indirect costs occur when

Accepted Answer

A) resources are shared by more than one product or service. 
B) costs are directly traced to products or services. 
C) controllable costs are incurred by cost objectives. 
D) All of these answer choices are correct. 
A) resources are shared by more than one product or service. 
B) costs are directly traced to products or services. 
C) controllable costs are incurred by cost objectives. 
D) All of these answer choices are correct.

Question 10

Under the ABC approach, costs are assigned to cost drivers based on a chosen cost objective.

Accepted Answer

A) True 
 B)False

Question 11

Unique Finds sells fine collectible statues and has implemented activity-based costing.Costs in the shipping department have been divided into three cost pools.The first cost pool contains costs that are related to packaging and shipping.Unique has determined that the number of boxes shipped is an appropriate cost driver for these costs.The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected.The final cost pool is used for general operations of the department and the cost driver is the number of orders.Information about the activities is summarized below: $$\begin{array} { | l | c | c | c | } 
\hline \multicolumn{1}{|c|} { \text { Cost Pool } } & \begin{array} { c } 
\text { Estim ated } \
\text { Total } \
\text { Costs }
\end{array} & \text { Cost Driver } & \begin{array} { c } 
\text { Estim ated } \
\text { Annual } \
\text { Activity }
\end{array} \
\hline \begin{array} { l } 
\text { Packaging and } \
\text { shipping }
\end{array} & \$ 67,200 & \text { Number of boxes shipped } & 16,000 \text { boxes } \
\hline \text { Final inspection } & 200,000 & \begin{array} { c } 
\text { Number of individual items } \
\text { inspected }
\end{array} & 100,000 \text { items } \
\hline \text { General operations } & 85,000 & \text { Number of orders } & 10,000 \text { orders } \
\hline
\end{array}$$ During the period, the Eastern sales office generated 240 orders for a total of 3,560 items of which were shipped in 1,200 boxes.What amount of shipping department costs should be allocated to these sales?

Accepted Answer

A) $9,480 
B) $5,040 
C) $14,200 
D) None of these answer choices are correct. 
A) $9,480 
B) $5,040 
C) $14,200 
D) None of these answer choices are correct.

Question 12

Hurst Productions uses activity-based costing.The company produces weekly and monthly magazines.The estimated costs and expected activity for each of the activity pools follow: $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Expected Activity }$
$\begin{array}{|l|c|c|c|c|}
\hline \text { Cost Pool } & \begin{array}{c}
\text { Estim ated } \
\text { Cost }
\end{array} & \text { Weekly } & \text { Monthly } & \text { Total } \
\hline \text { Pressing } & \$ 24,600 & 600 & 400 & 1,000 \
\hline \text { Printing } & 6,250 & 400 & 100 & 500 \
\hline \text { Binding } & 9,000 & 800 & 1,200 & 2,000 \
\hline
\end{array}$ How much pressing cost will be assigned to monthly magazines?

Accepted Answer

A) $24.60 
B) $9,840 
C) $61.50 
D) None of these answer choices are correct. 
A) $24.60 
B) $9,840 
C) $61.50 
D) None of these answer choices are correct.

Question 13

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.The criminal law division actually used 3,040,000 gigabytes of bandwidth during June.The family law division used 2,100,000 and the civil law division used 3,100,000 gigabytes of bandwidth during June.What amount of the IT fixed costs will be allocated to the civil law division during June? (Compute cost allocation rates to 3 significant digits.)

Accepted Answer

A) $224,000 
B) $248,000 
C) $241,984 
D) None of these answer choices are correct. 
A) $224,000 
B) $248,000 
C) $241,984 
D) None of these answer choices are correct.

Question 14

The Copy Department of Hernandez Hardware is budgeted to incur $30,000 per month in fixed costs plus a cost of $0.02 per copy.The company allocates copy costs to user departments as follows:
-Fixed costs are allocated as a lump sum based on budgeted fixed costs and estimated peak demand for each department.
-Variable costs are allocated based on the budgeted rate per copy times the department's actual usage.
Which of the following is an advantage of this allocation scheme over allocating all actual service costs based on actual usage?

Accepted Answer

A) Departments that use copy services are charged for cost overruns in the copy department. 
B) The amount charged to a particular user department is affected by the number of copies used by another department. 
C) Managers in departments that use services pay for the fixed costs that fluctuate based on their changing needs. 
D) Managers are charged for the activities they use. 
A) Departments that use copy services are charged for cost overruns in the copy department. 
B) The amount charged to a particular user department is affected by the number of copies used by another department. 
C) Managers in departments that use services pay for the fixed costs that fluctuate based on their changing needs. 
D) Managers are charged for the activities they use.

Question 15

Maintenance costs at Sturgeon Company are allocated to the production departments based on area occupied.Maintenance costs of $300,000 are budgeted to maintain a 60,000 square foot production area.If the finishing department occupies 25,000 square feet, how much of the maintenance department costs will be allocated to the finishing department?

Accepted Answer

A) $125,000 
B) $175,000 
C) $100,000 
D) $5,000 
A) $125,000 
B) $175,000 
C) $100,000 
D) $5,000

Question 16

The production departments at Windsor Parke occupy a total area of 50,000 square feet.Heating costs total $600,000 and are allocated based on the area that each department occupies.The finishing department occupies 30,000 square feet and the packaging department occupies 20,000 square feet.What amount of heating cost will be allocated to the finishing and packaging departments, respectively?

Accepted Answer

A) $360,000 and $240,000 
B) $300,000 and $300,000 
C) $36,000 and $24,000 
D) $32,727 and $21,818 
A) $360,000 and $240,000 
B) $300,000 and $300,000 
C) $36,000 and $24,000 
D) $32,727 and $21,818

Question 17

What costs are affected by the manager's decisions for which the manager should be held accountable?

Accepted Answer

A) Indirect costs 
B) Controllable costs 
C) Sunk costs 
D) Pooled costs 
A) Indirect costs 
B) Controllable costs 
C) Sunk costs 
D) Pooled costs

Question 18

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: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Iechnology}&\text { Assembly}&\text { Iesting }\\hline
\text { Service department costs } & \$ 400,000 & \$ 230,000 & & \
\text { Square footage } & 2,000 & 3,000 & 20,000 & 30,000 \
\text { Workstations } & 4 & 16 & 10 & 30
\end{array}$ How much technology department costs will be allocated to the testing department using the direct method?

Accepted Answer

A) $92,000 
B) $65,714 
C) $172,500 
D) $115,000 
A) $92,000 
B) $65,714 
C) $172,500 
D) $115,000

Question 19

Unique Finds sells fine collectible statues and has implemented activity-based costing.Costs in the shipping department have been divided into three cost pools.The first cost pool contains costs that are related to packaging and shipping.Unique has determined that the number of boxes shipped is an appropriate cost driver for these costs.The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected.The final cost pool is used for general operations of the department and the cost driver is the number of orders.Information about the activities is summarized below: $$\begin{array} { | l | c | c | c | } 
\hline { \text { Cost Pool } } & \begin{array} { c } 
\text { Estimated } \
\text { Total } \
\text { Costs }
\end{array} & \text { Cost Driver } & \begin{array} { c } 
\text { Estimated } \
\text { Annual } \
\text { Activity }
\end{array} \
\hline \begin{array} { l } 
\text { Packaging and } \
\text { shipping }
\end{array} & \$ 67,200 & \text { Number of boxes shipped } & 16,000 \text { boxes } \
\hline \text { Final inspection } & 200,000 & \begin{array} { c } 
\text { Number of individual items } \
\text { inspected }
\end{array} & 100,000 \text { items } \
\hline \text { General operations } & 85,000 & \text { Number of orders } & 10,000 \text { orders } \
\hline
\end{array}$$ An order is shipped to a retail customer who has ordered 6 individual items.This order will be shipped in 3 separate boxes.What is the packing and shipping cost that will be allocated to the order?

Accepted Answer

A) $4.20 
B) $4.03 
C) $25.20 
D) $12.60 
A) $4.20 
B) $4.03 
C) $25.20 
D) $12.60

Question 20

Allocating fixed costs on a per unit basis will often cause the managers receiving the allocations to perceive the costs as variable.

Accepted Answer

A) True 
 B)False

The advantage of allocating budgeted rather than actual service department costs is that

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

Cost allocation methods that provide the most accurate full cost information for financial reporting, also provide the most accurate information for cost-plus contracts.

When fixed costs are unitized, they

Which of the following is a grouping of individual costs whose total is allocated using one allocation base?

Indirect costs occur when

Under the ABC approach, costs are assigned to cost drivers based on a chosen cost objective.

What costs are affected by the manager's decisions for which the manager should be held accountable?

Allocating fixed costs on a per unit basis will often cause the managers receiving the allocations to perceive the costs as variable.

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

Analyzing Financial Statements: a Managerial Perspective

Filters

Exam 6: Cost Allocation and Activity-Based Costing

The advantage of allocating budgeted rather than actual service department costs is that

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

Cost allocation methods that provide the most accurate full cost information for financial reporting, also provide the most accurate information for cost-plus contracts.

When fixed costs are unitized, they

Which of the following is a grouping of individual costs whose total is allocated using one allocation base?

Indirect costs occur when

Under the ABC approach, costs are assigned to cost drivers based on a chosen cost objective.

What costs are affected by the manager's decisions for which the manager should be held accountable?

Allocating fixed costs on a per unit basis will often cause the managers receiving the allocations to perceive the costs as variable.

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

Analyzing Financial Statements: a Managerial Perspective

Filters