Exam 7: Cost Allocation and Responsibility Accounting

The transfer price should be an amount between the market price and the variable cost.

The first step in developing an activity-based costing system is to identify the activities that will be used to assign the manufacturing overhead and estimate their total costs.

Centralized companies split their operations into different divisions, or operating units, and top management delegates decision making to the division/unit managers.

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. 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 transfer price is the transaction amount of one unit of goods when the transaction occurs between the company and its customers.

Which of the following is the correct formula for profit margin ratio?

The balanced scorecard is a performance evaluation system that requires management to consider financial performance measures of performance, but not nonfinancial measures.

Traditional costing systems employ multiple allocation rates, but an activity-based costing system uses only one rate for allocating manufacturing overhead.

Which of the following statements most accurately describes the company's "climate for action?"

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?

Manufacturing overhead costs, which are also known as indirect costs, cannot be cost-effectively traced to products.

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 hour for the account inquiry activity?

Brad, one of the managers of a multi-national company, is responsible to generate revenues and control costs in order to increase the operating income of his division. However, he is not concerned with investment-related decisions. Brad is most likely to be the manager of a(n):

Oscar prizes, a manufacturer of gift articles, uses a single plant wide rate to allocate indirect costs. The company allocates manufacturing overhead using a single plantwide rate with machine hours as the allocation base. Estimated overhead cost for the year is $5,000,000 and estimated machine hours are 25,000. During the year, the actual machine hours used were 30,000. Calculate the predetermined overhead allocation rate.

Which of the following is a disadvantage of decentralization?

In a decentralized company, all the planning and controlling decisions are made by the top management.

The manager of a profit center is responsible for generating revenues and managing the center's invested capital.

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

Ace Plastics produces different kinds of products, all in one manufacturing facility. They have identified four activities for their costing system: Materials management-allocated by number of purchase orders Chemical processing-allocated on metric tons Molding-allocated on direct labor hours Packaging-allocated by number of units produced The activity rates are as follows: Materials management \ 12.00 Per purchase order Chemical processing \ 7.50 Per metric ton Molding \ 24.00 Per direct labor hour Packaging \ 0.10 Per unit Engineering design shows that the order will require direct material worth $540, direct labor cost being $90, require 4 purchase orders to be placed, use 2 metric tons of chemical base, need 8 direct labor hours. The size of the order is to produce 3,000 units of product. Calculate total cost of production of the order.

Which of the following affects the company's ability to make on-time deliveries?