Exam 4: Cost Accumulation, Tracing, and Allocation

Indirect costs should not be pooled unless they share a common cost driver.

Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?

Select the correct statement from the following.

Indicate whether each of the following statements is true or false.A predetermined overhead rate should not be used to allocate overhead costs when volume varies during the year.A predetermined overhead rate is calculated using estimated cost and volume data.A predetermined overhead rate is calculated by dividing costs by volume, using a measure of volume such as direct labor hours or direct materials cost.A company may need to allocate overhead costs to products to make pricing decisions for the products.Accounting reports at the end of the fiscal year are based on estimated costs rather than actual costs.

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows: Total Miles Traveled: The amount of track improvement cost that should be allocated to the Western Division is: (Do not round your intermediate calculations.) Western Division 800,000 miles Pacific Division 1,200,000 miles

Which of the following is not an important factor in determining the appropriate cost driver to use in allocating a cost?

Herald Manufacturing Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production on a monthly basis. At the end of the accounting period it was determined that actual overhead cost was less than the estimated overhead cost and that the actual volume of production was higher than estimated. Based on this information alone:

Joint products are:

Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs.

A cost pool should be made up of costs with a common cost object.

During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:

Marsden Company has three departments occupying the following amount of floor space: Department 1 15,000 sq. ft. Department 2 10,000 sq. ft. Department 3 25,000 sq. ft. How much store rent should be allocated to Department 3 if total rent is equal to $200,000? (Do not round your intermediate calculations.)

Assume that a factory seeks to allocate rent to several departments that occupy the factory. The factory is occupied by all the departments. Which of the following is the most logical cost driver for allocating the factory rent?

To avoid the appearance that a joint product is incurring losses, a company might allocate joint costs based on relative sales value of each product at the split-off point.

The direct method of allocating service department costs does not take into account the fact that service departments often provide assistance to other service departments.

The method used to allocate service department costs can cause overstatement of costs for some cost objects and understatement for others.

Indicate whether each of the following statements is true or false.Indirect costs cannot be traced to a cost object in a cost-effective manner.For a factory with several departments, each department could be treated as a cost object.Depreciation on a factory building is a direct cost for the departments in the factory.For a factory with several departments, depreciation on equipment used in one department would be a direct cost to that department.An individual cost cannot be both fixed and direct with respect to a particular cost object.

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified?

In an organization, departments that provide support to operating departments are called:

Jefferson Company expects to incur $450,000 in manufacturing overhead costs during the current year. Other budget information follows: Department A Department B Department C Direct labor hours 15,000 5,000 20,000 Machine hours 8,000 10,000 12,000 Required: 1) Use direct labor hours as the cost driver to compute the allocation rate. Determine the amount of budgeted overhead cost for each department.2) Use machine hours as the cost driver to compute the allocation. Determine the amount of budgeted overhead cost for each department.3) Assume that Department A manufactured a product that required 160 direct labor hours and 85 machine hours. If overhead is allocated based on direct labor hours, how much overhead would be allocated to this product? 4) Assume that Department A manufactured a product that required 160 direct labor hours and 85 machine hours. If overhead is allocated based on machine hours, how much overhead would be allocated to this product?