Deck 12: Cost Accumulation, Tracing, and Allocation

Question 1

It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

Answer 1

True

Question 2

The selection of the most appropriate cost driver often requires considerable judgment in the absence of a strong cause-and-effect relationship.

Answer 2

True

Question 3

A predetermined overhead rate is calculated using estimated or predicted cost and volume data.

Answer 3

True

Question 4

Costs that can be traced to a cost object in a cost-effective way are called direct costs.

Question 5

The most useful cost driver for allocating a particular cost is the one with the strongest cause-and-effect relationship.

Question 6

Sometimes, volume-based cost drivers are used to allocate fixed indirect costs.

Question 7

Cost allocation is the process of dividing a total cost into its fixed and variable components.

Question 8

A company may use several different cost drivers to allocate its indirect costs.

Question 9

How a particular cost behaves (fixed versus variable) is dependent on whether the cost is classified as direct or indirect.

Question 10

An allocation base has a cause-and-effect relationship with a cost object.

Question 11

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

Question 12

The accuracy of managerial accounting information usually is more important than timeliness.

Question 13

The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing.

Question 14

Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments, A, B, and C. Assuming the three departments occupy 10,000, 20,000, and 30,000 square feet, respectively, the cost allocation rate for Department C is $0.80 per square foot.

Question 15

The first step in cost accumulation is to identify cost objects.

Question 16

Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12^th of the cost each month.

Question 17

The goal in allocating a cost to cost objects is to achieve a rational allocation.

Question 18

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.

Question 19

A cost object is anything for which management desires a separate tracking of costs, while a cost driver is the factor that causes the cost object to increase or decrease.

Question 20

Both direct and indirect costs can be relevant to a particular decision.

Question 21

Cost allocation is the process of dividing a total cost into its fixed and variable components.

Question 22

The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing.

Question 23

The accuracy of managerial accounting information usually is more important than timeliness.

Question 24

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

Question 25

The goal in allocating a cost to cost objects is to achieve a rational allocation.

Question 26

The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made.

Question 27

Each indirect cost should be allocated to products individually to provide the most useful cost information.

Question 28

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.

Question 29

Costs that can be traced to a cost object in a cost-effective way are called direct costs.

Question 30

How a particular cost behaves (fixed versus variable) is dependent on whether the cost is classified as direct or indirect.

Question 31

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

Question 32

A cost object is anything for which management desires a separate tracking of costs, while a cost driver is the factor that causes the cost object to increase or decrease.

Question 33

A manager believes that the number of units sold drives the company's selling costs. The number of units sold would be referred to as the cost driver.

Question 34

An allocation base has a cause-and-effect relationship with a cost object.

Question 35

The most useful cost driver for allocating a particular cost is the one with the strongest cause-and-effect relationship.

Question 36

Both direct and indirect costs can be relevant to a particular decision.

Question 37

The first step in cost accumulation is to identify cost objects.

Question 38

Once indirect costs are pooled, they must remain pooled for all allocations.

Question 39

It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

Question 40

Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments, A, B, and C. Assuming the three departments occupy 10,000, 20,000, and 30,000 square feet, respectively, the cost allocation rate for Department C is $0.80 per square foot.

Question 41

Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store?

A) The cost of heating and air-conditioning.
B) The cost of supplies.
C) The cost of the department manager's salary.
D) Rent on the store building.

Question 42

Southeast Manufacturing Company has identified the following cost objects: Cost Object 1: The cost of operating the finishing department
Cost Object 2: The cost of a particular product made in June
Cost Object 3: The cost of operating the factory
With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects:

A) 1 and 2.
B) 2 and 3.
C) 1 and 3.
D) 1, 2, and 3.

Question 43

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

Question 44

A predetermined overhead rate is calculated using estimated or predicted cost and volume data.

Question 45

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

Question 46

Which of the following costs generally can be traced directly to units of product?

A) Indirect materials
B) Overhead costs
C) Assembly labor
D) Indirect materials and assembly labor

Question 47

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

Question 48

Each indirect cost should be allocated to products individually to provide the most useful cost information.

Question 49

Cobalt Company management has identified the following cost objects: Cost Object 1: The cost of operating the finishing department
Cost Object 2: The cost of operating the factory
Cost Object 3: The cost of a particular product made in June
With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified?
$\begin{array}{llll} &\text { Object } 1&\text { Object } 2&\text { Object } 3\end{array}$
A. $\begin{array}{llll} & \text { Direct } & \text { Direct } && \text { Direct } \\\end{array}$
B. $\begin{array}{llll}& \text { Direct } & \text { Direct } && \text { Indirect } \\\end{array}$
C. $\begin{array}{llll}& \text { Indirect } & \text { Indirect } & \text { Indirect } \\\end{array}$
D. $\begin{array}{llll}&\text { Indireat } & \text { Indireat } & \text {Direct }\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 50

Cost accumulation is used to:

A) Determine the cost of a particular cost object.
B) Identify and estimate opportunity costs.
C) Identify fixed and variable costs.
D) Set the selling price for a service.

Question 51

The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made.

Question 52

Which of the following is not an example of a cost object and its related cost driver? $\begin{array}{cc} \text { Cost Object } &&&& \text { Cost Driver} \\\end{array}$
A. $\begin{array}{cc} \text { Rent } &&&&&& \text { Square feet } \\\end{array}$
B. $\begin{array}{cc} \text { Transportation } & & \text { Miles driven } \\\end{array}$
C. $\begin{array}{cc} \text { Direct labor hours } & \text { Indirect labor} \\\end{array}$
D. $\begin{array}{cc} \text { Uttilities} &&&&& \text { Machine hours } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 53

Sometimes, volume-based cost drivers are used to allocate fixed indirect costs.

Question 54

Select the incorrect statement from the following.

A) Indirect costs can be easily traced to a cost object.
B) Actual costs are useful for evaluating managerial performance.
C) Actual costs are not relevant in many decisions because actual costs cannot be determined until after the decision has been made.
D) When accumulating the cost of a specific cost object, the indirect costs are allocated to the cost object.

Question 55

Managers of a discount store chain are considering whether to add a new auto service department. In reaching this decision, the managers should consider:

A) Direct costs only.
B) Both direct and indirect costs.
C) Neither direct nor indirect costs.
D) Indirect costs but not direct costs.

Question 56

A company may use several different cost drivers to allocate its indirect costs.

Question 57

Select the false statement from the following.

A) Indirect costs cannot be easily traced to a cost object.
B) The same cost may be assigned to more than one cost object.
C) General, selling, and administrative costs cannot be assigned to a cost object.
D) A given cost can be driven by more than one cost driver.

Question 58

The selection of the most appropriate cost driver often requires considerable judgment in the absence of a strong cause-and-effect relationship.

Question 59

A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?

A) The costs of wood and glue would be treated as direct costs.
B) Wood, glue, and varnish would all be direct materials.
C) Wood would be accounted for as a direct cost, and glue and varnish as indirect costs.
D) The concepts of direct and indirect costs are not applicable here.

Question 60

Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12^th of the cost each month.

Question 61

Blankenship Company operates a factory with two departments, X and Y. The utilities to heat and light the manufacturing facility would most likely be allocated to departments X and Y on the basis of:

A) Square footage occupied.
B) Machine hours.
C) Direct labor hours.
D) Units sold.

Question 62

Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

A) It meets guidelines imposed by generally accepted accounting principles.
B) It can be traced to a division in a cost-effective manner.
C) It is a variable cost.
D) It can be allocated to a division.

Question 63

Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents. Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours. Based on this information:

A) $4 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
B) $20.80 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
C) $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent.
D) None of the answers are correct.

Question 64

At the beginning of the year, Rangle Company expected to incur $54,000 of overhead costs in producing 6,000 units of product. The direct material cost is $20 per unit of product. Direct labor cost is $30 per unit. During January, 600 units were produced. The total cost of the units made in January was:

A) $30,000
B) $5,400
C) $35,400
D) None of the answers are correct.

Question 65

At the beginning of the year, Rangle Company expected to incur $63,000 of overhead costs in producing 6,300 units of product. The direct material cost is $29 per unit of product. Direct labor cost is $39 per unit. During January, 590 units were produced. The total cost of the units made in January was:

A) $40,120
B) $5,900
C) $46,020
D) None of the answers are correct.

Question 66

Which of the following statements is true?

A) Indirect costs can easily be traced to a cost object; direct costs cannot be easily traced to a cost object.
B) Both direct and indirect costs can easily be traced to a cost object.
C) Neither direct nor indirect costs are easily traced to a cost object.
D) Direct costs can be traced easily to a cost object, but indirect costs cannot be easily traced to a cost object.

Question 67

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,600,000 to maintain its railroad track. Pertinent data for the two divisions are as follows:Total Miles Traveled: $\begin{array}{lr}\text { Western Division } & 860,000 \mathrm{miles} \\\text { Pacific Division } & 1,260,000 \mathrm{miles}\end{array}$
The amount of track improvement cost that should be allocated to the Western Division is: (Round intermediate calculation to 2 decimal places.)

A) $5,819,333.
B) $3,491,600.
C) $4,300,000.
D) $860,000.

Question 68

Marsden Company has three departments occupying the following amount of floor space: $$\begin{array} { l l } \text { Departiment } 1 & 21,000 \text { sq. ft. } \\\text { Department } 2 & 11,500 \text { sq. ft. } \\\text { Department } 3 & 31,000 \text { sq. ft. }\end{array}$$ How much store rent should be allocated to Department 3 if total rent is equal to $106,000? (Do not round intermediate calculations.)

A) $51,748
B) $31,000
C) $19,197
D) None of the answers are correct.

Question 69

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: $\text { Total Miles Traveled: }$
$\begin{array}{ll} \text { Western Division } &800,000 \text { miles } \\ \text {Pacific Division } & 1,200,000 \text { miles } \\\end{array}$
The amount of track improvement cost that should be allocated to the Western Division is:

A) $4,000,000.
B) $3,200,000.
C) $800,000.
D) $5,333,333.

Question 70

Select the correct statement from the following.

A) The allocation base determines whether a cost is classified as direct or indirect.
B) The same cost cannot be classified as both direct and indirect.
C) Relevant costs can include direct and indirect costs.
D) Direct costs always display a variable behavior pattern.

Question 71

Cost allocation involves:

A) Identifying a cost driver for each cost to be allocated.
B) Calculating an allocation rate for each cost to be allocated.
C) Multiplying the allocation rate by the weight of the cost driver.
D) All of the answers are correct.

Question 72

Craig Manufacturing Company operates its three production departments within a single facility. Each department produces its own products and maintains its own production equipment. Although they share a common facility, each department is overseen by a separate supervisor. Which one of the following costs is a direct cost of each department?

A) Lease payment on facility
B) Depreciation on the facility
C) Production supervisor salary
D) Plant manager salary

Question 73

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c } & \text { Product A } & \text { Product B } \\\text { Direct materials } & \$ 24,000 & \$ 19,000 \\\text { Direct labor } & 12,000 & 20,000\end{array}$$ The company's overhead costs of $58,000 are allocated based on labor cost. Assume 8,000 units of product A and 9,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)

A) $47,000
B) $105,000
C) $53,400
D) None of the answers are correct.

Question 74

Sheddon Industries produces two products. The products' identified costs are as follows: $\begin{array}{l}& \text { Product A } & \text { Product B } \\\text { Direct materials }&\$ 20,000&\$15,000\\\text { Direct labor }&12,000&24,000\end{array}$ The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)

A) $36,000
B) $111,000
C) $68,000
D) None of the answers are correct.

Question 75

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

A) $100,000
B) $50,000
C) $66,667
D) None of the answers are correct.

Question 76

Overhead costs include:

A) Direct and indirect costs.
B) Indirect costs only.
C) Direct costs only.
D) Neither direct nor indirect costs.

Question 77

At the beginning of the year, Barcroft Co. estimated that its total annual fixed overhead costs would amount to $25,000. Further, Barcroft estimated that its volume of production would be 2,000 units of product. Based on these estimates, Barcroft computed a predetermined overhead rate that was used to allocate overhead costs to the products made during the year. As predicted, actual fixed overhead costs did amount to $25,000. However, actual volume of production amounted to 2,200 units of product. Based on this information alone:

A) Products were costed accurately during the year.
B) Products were overcosted during the year.
C) Products were undercosted during the year.
D) The answer cannot be determined from the information provided.

Question 78

Some costs that possibly could be traced directly to cost objects are nonetheless classified as indirect costs because:

A) Such costs cannot be traced to objects in a cost-effective manner.
B) Such practice results in a more accurate accumulated cost for the object.
C) Generally accepted accounting principles require some costs to be treated as indirect.
D) All of the answers are correct.

Question 79

Which of the following statements is true regarding the salary of the manager of a fast-food hamburger restaurant?

A) The salary is a fixed cost that is directly traceable to the cost of making hamburgers.
B) The salary is a variable cost that is directly traceable to the cost of operating a specific restaurant.
C) The salary is a variable cost that cannot be traced to the cost of operating a specific restaurant.
D) None of the answers are correct.

Question 80

Overhead costs:

A) Cannot be traced to cost objects in a cost-effective manner, but are instead allocated to cost objects.
B) Cannot be allocated to cost objects.
C) Are always variable costs.
D) Are only incurred by manufacturing companies.