Exam 24: Cost Allocation and Responsibility Accounting

An activity-based costing system is developed in four steps. A. Compute the allocation rate for each activity B. Identify activities and estimate their total costs C. Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base D. Allocate the indirect costs to the cost object Which of the following is the correct order of performing these steps?

Direct material costs and direct labor costs cannot be easily traced to products. Therefore, they are allocated to products.

Increased number of repeat customers and increased rate of on-time deliveries are the indicators of:

The target rate of return is the maximum rate of return that top management expects a division to earn with its average total assets.

Which of the following perspectives of the balanced scorecard focuses on revenue growth and productivity?

Performance report of a profit center includes both revenues and expenses.

Uncontrollable costs are the costs that can be influenced by the decisions of a manager.

Managers of investment centers are responsible not only for generating profits, but also for ensuring efficient use of assets of the investment center.

One of the advantages of decentralization is that it allows top management to concentrate on long-term strategic planning.

A company that uses a balanced scorecard has established a KPI for product quality. If the actual warranty claims are higher than expected it indicates that the quality standards have been met.

The ROI (Return on Investment) formula focuses on the amount of operating income earned before other revenue/expense items, such as interest expense, by utilizing the average total assets employed for the year.

One part of the balanced scorecard helps management answer the question "How do we look to shareholders?" Which of the four perspectives is being described here?

WAX-D Inc. has a division that manufactures a component that sells for $150 and has a variable cost of $45. Another division of the company wants to purchase the component. Fixed cost per unit of component is $25. What is the minimum transfer price if the division is operating at capacity?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters What is the cost per letter for the correspondence activity?

Pitt Jones Company had the following activities, allocated costs, and allocation bases: Activities Allocated Costs Allocation Base Account inquiry (hours) \ 60,000 2,000 hours Account billing (lines) \ 30,000 20,000 lines Account verification (accounts) \ 15,000 20,000 accounts Correspondence (letters) \ 10,000 1,000 letters The above activities are carried out at two of their regional offices. Northeast Office Midwest Office Account inquiry (hours) 100 hours 200 hours Account billing (lines) 10,000 lines 7,000 lines Account verification (accounts) 1,000 accounts 600 accounts Correspondence (letters) 50 letters 100 letters What is the cost per account for the account verification activity?

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture. There is no direct labor cost. Additional information is as follows: Activity Allocation Base Cost Allocation Rate \ Materials handling Number of parts 0.08 Machining Machine hours 7.20 Assembling Number of parts 0.35 Packaging Number of finished units 2.70 What is the total manufacturing cost per ceiling fan?

The primary objective in setting transfer prices is to achieve goal congruence by selecting a price that will maximize overall company profits.

Responsibility reports for revenue centers show all costs incurred by the department and are useful when management needs to know the total cost of operating the department.

Recreation Equipment Company has several divisions which are investment centers. Data for the Boat Division and the Trailer Division are shown here: Boat Division Trailer Division Operating income \ 90,000 \ 36,000 Total assets at Jan 1 \ 670,000 \ 230,000 Total assets at Dec 31 \ 710,000 \ 220,000 Which of the following statements would be the most meaningful interpretation of this data?

Orlando Avionics makes three types of radios for small aircraft: Model A, Model B, and Model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Orlando has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows: Model A \ 28 Model B \ 32 Model C \ 40 Orlando has three activities: assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2015 were estimated as follows: Total cost Total units Cost Driver Assembly \ 780,000 120,000 Machine hours Materials management \ 120,000 80,000 Parts Testing \ 22,500 5,000 Units The Model A radio requires 12 parts to construct, and requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?