Deck 7: A Closer Look at Overhead Costs

Question 1

A cost pool is:

A) a collection of costs to be assigned
B) the joint result of several subunit activities
C) the primary function of a responsibility accounting system
D) a performance report of the lowest level manager

Answer 1

A

Question 2

Which of the following would NOT be a volume-based cost driver in a conventional costing system?

A) Quantity of direct material
B) Factory floor area in square metres
C) Direct labour hours
D) Machine hours

Answer 2

B

Question 3

Normal costing is when:

A) actual material,labour and overhead costs are added to work in process.
B) actual material,and predetermined labour and overhead costs are added to work in process.
C) actual labour,and predetermined material and overhead costs are added to work in process.
D) actual material and labour and predetermined overhead costs are added to work in process.

Answer 3

D

Question 4

Consider the following statements about the two-stage cost allocation process.i.Costs in various cost pools are distributed to all departments,including support and production departments
Ii)Support department costs are allocated to production departments.
Iii)Costs are assigned to each production department that has worked on the product.Which statement/s is/are correct?

A) i,ii and iii
B) i and iii
C) iii
D) ii

Question 5

Which of the following statements is false?
Manufacturing overhead costs are:

A) sometimes called factory burden
B) indirect product costs
C) all manufacturing costs other than direct material and direct labour
D) non-existent in service firms

Question 6

The 'direct method' ignores the fact that:

A) some support departments provide services to other support departments
B) cost allocation is a major factor in its accountability
C) each department's cost is allocated only for the service consumed by it
D) All of the given answers

Question 7

The step/s used in cost allocation include/s:

A) cost application
B) cost distribution
C) support department cost allocation
D) All of the given answers

Question 8

Budgeted amounts of allocation bases,rather than actual amounts,are preferable allocation bases because:

A) when actual amounts are used the behaviour of one responsibility centre affects the costs allocated to other responsibility centres.
B) budgeted amounts are known in advance,therefore costs are easier to allocate.
C) the use of actual amounts could cause fluctuations in the prices charged for a company's products or services.
D) budgeted amounts are known in advance,therefore costs are easier to allocate AND the use of actual amounts could cause fluctuations in the prices charged for a company's products or services.

Question 9

The following information relates to the Moonie Park Manufacturing Company for the year 2012.What would be the amount of underapplied or overapplied overhead at the end of the month if overhead rates were calculated based on practical capacity,normal capacity and budgeted capacity respectively.

A) $17 500 under;neither under or over;$35 000 over
B) $17 500 under;$35 000 over;neither under or over
C) Neither under or over;$17 500 under;$35 000 over
D) Neither under or over;$35 000 over;$17 500 under

Question 10

The following information relates to the Moonie Park Manufacturing Company for the year 2012.The predetermined overhead rates per machine hour based on practical capacity,normal capacity and budgeted capacity respectively are:

A) $4.50,$5.00 and $6.00
B) $6.00,$4.50 and $5.00
C) $6.00,$5.00 and $4.50
D) $5.00,$4.50 and $6.00

Question 11

An allocation base may also be referred to as a:

A) cost object
B) common cost
C) cost driver
D) joint base

Question 12

The mutual provision of service between support departments is called:

A) joint service
B) shared services
C) reciprocal services
D) allocated services

Question 13

The process of assigning the costs in a cost pool to the cost objects is called:

A) cost allocation
B) segmented profit and loss statement
C) variance
D) absorption costing

Question 14

Consider the following statements about support department costs.i.In order to assign all manufacturing costs to products,support department costs must be allocated to production departments
Ii)Support department costs are period costs rather than product costs because the support departments are not directly involved in production.
Iii)Support departments are not considered crucial to the production process.Which statement/s is/are correct?

A) i,ii and iii
B) i and iii
C) iii
D) i

Question 15

Consider the following statements regarding cost allocation.i.Allocation of budgeted costs is preferred to actual cost as this minimises the possibility that the actions of one user department will affect the costs allocated to another user department
Ii)Allocation of standard budgeted rates is preferred,so the user department does not have to bear the inefficiencies of support departments.
Iii)Knowing the standard rates in advance allows the user departments to plan their activities with greater certainty.Which statement/s is/are true?

A) i
B) i and ii
C) i,ii and iii
D) ii and iii

Question 16

Each cost pool is distributed to each responsibility centre in:

A) proportion to that centre's relative amount of allocation base
B) proportion to that centre's relative amount of direct cost
C) proportion to that centre's relative amount of liabilities
D) proportion to that centre's relative amount of profit

Question 17

If the relationship between overhead costs and the cost drivers differs substantially across production departments,the firm should use:

A) a plantwide overhead rate
B) multiple-departmental overhead rates
C) actual overhead activity
D) machine hours to determine the overhead rate

Question 18

Which of the following is a common base to distribute the cost of building depreciation to responsibility centres?

A) Number of employees in responsibility centre
B) Budgeted sales dollars in responsibility centre
C) Square metres of space occupied by responsibility centre
D) Budgeted direct costs of operating the responsibility centre

Question 19

For management accounting purposes,the denominator volume for applying overhead to products may be:

A) budgeted capacity
B) practical capacity
C) normal capacity
D) All of the given answers

Question 20

The most widely used methods of support department cost allocations are the:

A) direct method and cost application.
B) cost distribution and step-down method.
C) direct method and step-down method.
D) step-down method and cost application.

Question 21

Under dual cost allocation,variable costs are allocated based on the user departments of the support department's output:

A) long-run usage
B) short-run usage
C) long-run usage and short-run usage
D) neither the long- or short-run usage

Question 22

Which of the following statement/s is/are true?

A) A two-stage allocation process is not suitable under an activity-based costing system.
B) Under activity-based costing,the emphasis is on the cost of activities.
C) Under an activity-based costing system,the cost of activities may include the cost of labour.
D) Under activity-based costing,the emphasis is on the cost of activities AND under an activity-based costing system,the cost of activities may include the cost of labour.

Question 23

Under dual cost allocation,fixed costs are allocated based on the user departments of the support department's output:

A) long-run average usage
B) short-run usage
C) long-run usage and short-run usage
D) forecasted short-run usage

Question 24

When the step-down method is used to allocate support department costs,a common way to select the first support department in the sequence is to choose the support department which:

A) obtains the highest yield
B) serves no other support department
C) serves the greatest number of other support departments
D) obtains the highest yield AND serves no other support department

Question 25

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments.The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees.The following information is available.Using the direct method,calculate the amount of Personnel Department cost allocated to Sales Department #3.

A) $12 000
B) $15 000
C) $12 857
D) $13 500

Question 26

The support department cost allocation method that completely ignores reciprocal services between support departments is called the:

A) direct method
B) step-down method
C) reciprocal method
D) direct method AND step-down method

Question 27

When allocating support department costs,the costs that should be used are:

A) actual fixed costs and budgeted variable costs
B) actual fixed costs and actual variable costs
C) budgeted fixed costs and actual variable costs
D) budgeted fixed costs and budgeted variable costs

Question 28

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments.The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees.The following information is available.Using the step-down method,calculate the amount of Janitorial Department cost allocated to Sales Department #2,if the Personnel Department is allocated first.

A) $10 247
B) $8571
C) $9857
D) $10 350

Question 29

Assume a firm uses job costing.Which of the following is NOT a good reason to use departmental overhead rates rather than a single plantwide rate?

A) Total overhead costs amount to about 5 per cent of total prime costs.
B) The various products made by the firm follow different sequences of manufacturing activities.
C) Overhead costs in some departments are a very large proportion of total department cost,but are a very small proportion in other departments.
D) The firm makes multiple products using common equipment and employees.

Question 30

The size and scale of support departments is usually determined by the:

A) capital budget
B) average fixed and variable costs
C) short-term needs of the user departments
D) projected long-run needs of the user departments

Question 31

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments.The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated because of employees.The following information is available.Using the step-down method,calculate the amount of Personnel Department cost allocated to Sales Department #3,if the Personnel Department is allocated first.

A) $13 500
B) $12 857
C) $12 000
D) $15 000

Question 32

The support department cost allocation method that fully accounts for the mutual provision of services between support departments is called the:

A) direct method
B) step-down method
C) reciprocal method
D) dual cost allocation method

Question 33

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments.The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees.The following information is available.Using the direct method,calculate the amount of Janitorial Department cost allocated to Sales Department #2.

A) $8654
B) $8571
C) $9000
D) $10 350

Question 34

The process of allocating fixed and variable costs separately is called:

A) variable cost application
B) fixed cost separation
C) reciprocal cost allocation
D) dual cost allocation

Question 35

The support department cost allocation method that recognises some of the reciprocal services between support departments is called the:

A) step-down method
B) reciprocal method
C) dual cost allocation method
D) joint cost method

Question 36

Consider the following statements about support department cost allocations.i.In a modern manufacturing environment,it is not necessary to allocate support department costs
Ii)Support department cost allocations continue to be necessary when a highly automated system is in use.
Iii)In a flexible manufacturing system,the need to allocate costs diminishes because more costs have become traceable to the product.Which statement/s is/are true?

A) i
B) i and ii
C) ii and iii
D) i,ii and iii

Question 37

The first step under the step-down method is:

A) allocate total support department costs to production departments.
B) choose a sequence in which to allocate support department costs.
C) apply a cost to the secondary support departments.
D) determine the overhead base for each production department.

Question 38

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing)and two support departments (Janitorial and Personnel).The usage of the two support departments in 2012 is as follows:
The budgeted costs in the support departments of 2012 were as follows:
Using the direct method,what is the Personnel Department cost allocated to the Assembly Department?

A) $60 000
B) $54 000
C) $21 053
D) $78 842

Question 39

After all manufacturing overhead costs have been assigned to the production departments,the step to assign all manufacturing overhead costs accumulated in a production department to the jobs that the department has worked on is called:

A) support department cost allocation
B) cost distribution
C) overhead application
D) cost apportionment

Question 40

Consider the following statements about support department cost allocations.i.The allocation of actual costs encourages support department managers to control the costs in their departments
Ii)When budgeted costs are allocated,any efficiency in support department operations are passed along to user departments.
Iii)The allocation of budgeted costs rather than actual costs gives an incentive for support department managers to control costs in their departments.Which statement/s is/are true?

A) i
B) ii
C) i and ii
D) iii

Question 41

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing)and two support departments (Janitorial and Personnel).The usage of the two support departments in 2012 is as follows:
The budgeted costs in the support departments of 2012 were as follows:
Using the step-down method,what is the amount of Janitorial Department cost allocated to the Assembly Department with the Personnel Department cost allocated first?

A) $24 842
B) $28 948
C) $34 158
D) $23 600

Question 42

Management would prefer to use either absorption costing or variable costing depending on:

A) which gives the highest profit figure
B) which is required by the Australian accounting standards
C) whether they consider the benefits of using variable costing outweigh the additional costs involved
D) which is provided at the least cost

Question 43

Absorption costing profit is always equal to:

A) variable costing profit + fixed overhead in opening inventory - fixed overhead in closing inventory
B) fixed overhead in opening inventory + fixed overhead in closing inventory
C) fixed overhead in opening inventory - fixed overhead in closing inventory
D) variable costing profit + fixed overhead in closing inventory - fixed overhead in opening inventory

Question 44

The income of a company for a year on a variable costing basis is $85 000 and on an absorption costing basis is $73 000.Fixed costs per unit were the same in both the prior and current year ($1.20 per unit).What was the change in inventory over the year?

A) Decrease of 10 000 units
B) Increase of 10 000 units
C) Increase of 12 000 units
D) None of the given answers

Question 45

The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
What is the value of closing inventory of finished goods under variable costing?

A) $420 000
B) $180 000
C) $240 000
D) $120 000

Question 46

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing)and two support departments (Janitorial and Personnel).The usage of the two support departments in 2012 is as follows:
The budgeted costs in the support departments of 2012 were as follows:
Using the step-down method,what is the total support department costs allocated to the Finishing Department with the Personnel Department cost allocated first?

A) $81 052
B) $74 000
C) $61 158
D) $78 842

Question 47

Where the fixed overhead rate in both opening and closing inventories is the same,which of the following statements is correct?

A) If inventory remains the same,absorption costing profit will be greater than variable costing profit.
B) If inventory has decreased,absorption costing profit will be greater than variable costing profit.
C) Absorption costing profit is always greater than variable costing profit.
D) If inventory has increased,absorption costing profit will be greater than variable costing profit.

Question 48

The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
What is the profit under absorption costing?

A) $750 000
B) $1 250 000
C) $350 000
D) $500 000

Question 49

Classix Products reported $28 000 in net profit for the year using variable costing.The company had no units in beginning inventory,planned and actual production was 30 000 units,and sales were 25 000 units during the year.Variable manufacturing costs were $15 per unit and total budgeted fixed manufacturing overhead was $150 000.There was no underapplied or overapplied overhead reported during the year.Determine the net profit under absorption costing.

A) $28 000
B) $30 000
C) $53 000
D) $58 000

Question 50

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing)and two support departments (Janitorial and Personnel).The usage of the two support departments in 2012 is as follows:
The budgeted costs in the support departments of 2012 were as follows:
Using the direct method,what is the Janitorial Department cost allocated to the Assembly Department?

A) $28 948
B) $21 053
C) $34 158
D) $25 000

Question 51

Which of the following statements is correct?

A) Inventories under absorption costing are always higher than under variable costing.
B) Cost of goods sold under absorption costing is always higher than under variable costing.
C) The amount of fixed overhead expensed under absorption costing is always higher than under variable costing.
D) Inventories under absorption costing are always higher than under variable costing AND cost of goods sold under absorption costing is always higher than under variable costing.

Question 52

Monex reported $65 000 in net profit for the year using absorption costing.The company had no units in beginning inventory,planned and actual production was 20 000 units and sales were 18 000 units during the year.Variable manufacturing costs were $20 per unit and total budgeted fixed manufacturing overhead was $100 000.There was no underapplied or overapplied overhead reported during the year.Determine the net profit under variable costing.

A) $115 000
B) $75 000
C) $65 000
D) $55 000

Question 53

Variable costing is more useful than absorption costing for:
I)special order decisions
Ii)short-term pricing of products
Iii)long-term pricing of products

A) i
B) iii
C) i and ii
D) i,ii and iii

Question 54

Assume that the predetermined fixed overhead rate per unit remains the same from 2007 to 2008 and inventory decreases in 2008.Which of the following statements is true?

A) The fixed overhead expended in 2008 under variable costing will be greater than that expended under absorption costing.
B) The fixed overhead expended in 2008 under absorption costing will be greater than that expended under variable costing.
C) The amount of fixed overhead expended will be the same under both methods.
D) It is impossible to determine what effect the decrease in inventory will have on net profit under absorption costing.

Question 55

A normal absorption costing system charges work in process with:

A) actual prime costs and actual overhead costs.
B) applied prime costs and all overhead costs using a budgeted rate.
C) actual prime costs and all overhead costs using a budgeted rate.
D) applied direct materials and all conversion costs using a budgeted rate.

Question 56

The Kelsey Manufacturing Company Ltd has two production departments (Assembly and Finishing)and two support departments (Janitorial and Personnel).The usage of the two support departments in 2012 is as follows:
The budgeted costs in the support departments of 2012 were as follows:
Using the step-down method,what is the amount of Personnel Department cost allocated to the Assembly Department with the Personnel Department cost allocated first?

A) $60 000
B) $54 000
C) $21 053
D) $28 948

Question 57

Using the information below,what would be the profit under variable costing and absorption costing,respectively?

A) $10 044;$8220
B) $9000;$13 176
C) $10 044;$14 220
D) Insufficient data to calculate

Question 58

The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
What is the value of closing inventory of finished goods under absorption costing?

A) $420 000
B) $240 000
C) $120 000
D) $480 000

Question 59

Gallison Company's net profit under absorption costing was $15 000 higher than under variable costing.During the year,the company produced 20 000 units for total variable production costs of $80 000.If fixed manufacturing overhead was $40 000,how many units were sold?

A) 20 000 units
B) 12 500 units
C) 10 000 units
D) 7500 units

Question 60

Consider the following statements regarding absorption costing and variable costing.i.Profit reported under absorption costing for a year will likely differ from that reported under variable costing because production and sales differ
Ii)Total profit when added together over a ten-year period will be approximately equal under absorption costing and variable costing because production and sales will be approximately the same.
Iii)Total profit when added together over a ten-year period will be significantly different under absorption and variable costing because fixed costs will generally increase significantly over that long.Which statement/s is/are true?

A) i
B) i and ii
C) i and iii
D) ii

Question 61

Absorption costing is a method of allocating cost to inventories such that the cost of inventory includes:

A) both variable and fixed costs,irrespective of the level of operating capacity
B) an appropriate share of both variable and fixed costs with fixed costs being allocated based on normal operating capacity
C) all costs other than fixed costs based on normal operating capacity
D) both variable and fixed costs,both of which are allocated based on normal operating capacity

Question 62

The production section of a firm is serviced by personnel and computing as follows:
Personnel costs are allocated on the number of employees and computing costs on service hours.Overhead rates are based on labour hours.If the reciprocal services method is used to allocate support department costs,the total cost (rounded)allocated out of Personnel would be:

A) $40 000
B) $44 444
C) $56 715
D) $55 636

Question 63

The following information about Monfort Manufacturing is available:
Using the step-down method and starting with Training Department,the cost allocated from Training Department to Machining Department is:

A) $50,000
B) $98,214
C) $106,667
D) $80,000

Question 64

The East Coast University uses a printing machine,the FL200,to print exam papers.According to the operation manual,FL200 can prints 2000 sets of exam papers per hour when it is operating at peak efficiency.However,Edgo Liew,the head printer,notes that in normal (but still efficient)operations,the machine can produce only 1800 sets of exam papers in an hour.Further,Edgo also notes that given the small number of students enrolled in the East Coast University,the machine is never required to print more than 1500 sets of exam papers per hour.The theoretical capacity of the FL200 is:

A) 2000 sets of exam papers per hour
B) 1800 sets of exam papers per hour
C) 1500 sets of exam papers per hour
D) 500 sets of exam papers per hour

Question 65

Jasmine Doh is considering using cost drivers that are measured in dollars (rather than physical units)for her company.Your advice is:

A) This is a good idea as cost drivers measured in dollars are usually already recorded in the accounting system.
B) This is a good idea as it avoids estimating costs associated with each physical unit of cost driver.
C) This is a bad idea because dollar-based cost drivers are subject to price change.
D) This is a bad idea because using dollar-based cost drivers oversimplifies the cost allocation process.

Question 66

When estimating the costs of a cost object,direct costs are allocated and indirect costs are traced to the object.

Question 67

The following information about Monfort Manufacturing is available:
Using the direct method,the cost allocated from both of the support departments to Machining Department is:

A) $170 000
B) $155 000
C) $160 000
D) $180 000

Question 68

The production section of a firm is serviced by personnel and computing as follows:
Personnel costs are allocated on the number of employees and computing costs on service hours.Overhead rates are based on labour hours.If the direct method is used to allocate support department costs,what is the overhead rate for the Assembly Department?

A) $8
B) $9.25
C) $9.44
D) $10.69

Question 69

The following information about Monfort Manufacturing is available:
Using the reciprocal method,the cost allocated from Training Department to Polishing Department is:

A) $297,297
B) $106,177
C) $79,279
D) $74,324

Question 70

The East Coast University uses a printing machine,the FL200,to print exam papers.According to the operation manual,FL200 can print 2000 sets of exam papers per hour when it is operating at peak efficiency.However,Edgo Liew,the head printer,notes that in normal (but still efficient)operations,the machine can produce only 1800 sets of exam papers in an hour.Further,Edgo also notes that given the small number of students enrolled in the East Coast University,the machine is never required to print more than 1500 sets of exam papers per hour.The practical capacity of the FL200 is:

A) 2000 sets of exam papers per hour
B) 1800 sets of exam papers per hour
C) 1500 sets of exam papers per hour
D) 500 sets of exam papers per hour

Question 71

Theoretical capacity refers to:

A) the maximum level of production that a plant will produce under normal,efficient operating conditions
B) the maximum level of production that a plant will produce under peak efficiency
C) the minimum level of production that a plan can produce under peak efficiency
D) the level of production given the theoretical level of customer demand

Question 72

The following information about Monfort Manufacturing is available:
Using the reciprocal method,the equations required to calculate the costs of the support departments are: (where T= the cost of Training Department;M=the cost of Maintenance Department)

A) T=$300,000 + 0.25*M;M=$200,000+0.30*T
B) T=$300,000 + 0.30*M;M=$200,000+0.25*T
C) T=$200,000 + 0.30*M;M=$300,000+0.25*T
D) T=$200,000 + 0.25*M;M=$300,000+0.30*T

Question 73

Which of the following statement/s is/are correct?

A) Absorption costing is required by the Australian accounting standards.
B) Variable costing records are more useful than absorption costing records for management decision making.
C) Firms that are required to comply with the accounting standards are likely to use variable costing if the benefits of keeping a second set of records exceed the costs.
D) All of the given answers.

Question 74

The production section of a firm is serviced by personnel and computing as follows:
Personnel costs are allocated on the number of employees and computing costs on service hours.Overhead rates are based on labour hours.If the reciprocal services method is used to allocate support department costs,the total support department costs allocated to the Assembly Department (rounded)would be:

A) $55 927
B) $52 800
C) $53 800
D) $56 072

Question 75

The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900,000 for the year.Information about Browning's production activity for the year follows:
What is the profit under variable costing?

A) $1 250 000
B) $350 000
C) $500 000
D) Insufficient information to determine

Question 76

The estimation of the quantity of a cost driver is called the denominator volume.

Question 77

The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
Assuming all information is provided above,the difference in profit between absorption and variable costing would be expected to be:

A) 25 000 × $8
B) 30 000 × $8
C) 25 000 × $6
D) 30 000 × $6

Question 78

The reciprocal approach to allocating support department costs recognises that only large support departments provide services to other support departments.

Question 79

Appleford Ltd is a furniture manufacturer.It has a small range of products.Its manufacturing processes are characterised by a high level of automation.Appleford Ltd decides to choose a volume-based cost driver for its indirect manufacturing costs.Which of the following cost drivers is most appropriate?

A) The number of units produced.
B) The number of machine hours.
C) The number of manufacturing batches.
D) Direct labour hours.

Question 80

When a company is choosing between different types of volume based cost drivers,which of the following factors suggest the use of outputs as a cost driver?
I)The company has only one product
Ii)The company is labour intensive.
Iii)The company uses large quantities of direct materials.

A) i
B) i and iii
C) ii
D) ii and iii