Question 1

The departmental approach of cost allocation recognizes that the typical manufacturing operation involves which type(s)of departments?

Accepted Answer

A) Service departments and product departments. 
B) Production departments and assembly departments. 
C) Joint product departments and separable departments. 
D) Cost pools and cost objects. 
E) Support departments and other service departments.

Question 2

The Insurance Plus Company has two service departments - actuarial and premium rating,and two production departments - marketing and sales.The distribution of each service department's efforts to the other departments is shown below: 
The direct operating costs of the departments (including both variable and fixed costs)were as follows: Actuarial $50,000.Premium Rating $40,000.Marketing $60,000.Sales $70,000.The total cost accumulated in the marketing department using the direct method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $52,857. 
B) $60,000. 
C) $112,857. 
D) $130,000. 
E) $142,857.

Question 3

By-product costing that uses the asset recognition method(s)creates:

Accepted Answer

A) Expense recognition in the current period. 
B) A distortion of net income. 
C) An adjustment on the income statement. 
D) An inventory value in the period in which the by products are produced. 
E) A result that is not compatible with GAAP.

Question 4

The cost allocation method most widely used because of its accuracy and ability to provide a detailed level of analysis is:

Accepted Answer

A) Departmental approach. 
B) Activity-based approach. 
C) Direct approach. 
D) Accounting approach. 
E) Joint product costing.

Question 5

Cost allocation of shared facilities cost is intended to remind managers of:

Accepted Answer

A) The cost of using a shared resource. 
B) Both the cost and value of using shared resources. 
C) How much capacity a firm has. 
D) Why the firm invests in these facilities. 
E) How dependent the managers are for these facilities.

Question 6

The Insurance Plus Company has two service departments - actuarial and premium rating,and two production departments - marketing and sales.The distribution of each service department's efforts to the other departments is shown below: 
The direct operating costs of the departments (including both variable and fixed costs)were as follows: Actuarial $50,000.Premium Rating $40,000.Marketing $60,000.Sales $70,000.The total cost accumulated in the marketing department using the reciprocal method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $112,471. 
B) $122,471. 
C) $130,000. 
D) $142,471. 
E) $150,000.

Question 7

Which one of the following methods of cost allocation is completed by taking the service flows to production departments only and determining each production department's share of that service?

Accepted Answer

A) Direct method. 
B) Indirect method. 
C) Step method. 
D) Reciprocal method. 
E) Cross-functional method.

Question 8

Hartwicke Manufacturing Company has two service departments - product design and engineering support,and two production departments - assembly and finishing.The distribution of each service department's efforts to the other departments is shown below: 
The direct operating costs of the departments (including both variable and fixed costs)were as follows: Design $120,000.Engineering Support $240,000.Assembly $660,000.Finishing $870,000.The total cost accumulated in the finishing department using the direct method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $1,055,000. 
B) $1,890,000. 
C) $835,000. 
D) $645,000. 
E) $723,000.

Question 9

"What's the big fuss about learning three different methods of cost allocation for joint products? The total cost doesn't change,and the real question that needs answering is whether to further process joint products or sell right away.Besides,our firm uses JIT inventory,so there aren't any ending inventories to cost."
Required: Comment on these ideas.

Accepted Answer

The answer of "What's the big fuss about learning three...

Question 10

Which of the following is an example of a physical measure used in the physical measure method?

Accepted Answer

A) Pounds. 
B) Minutes. 
C) Seconds. 
D) Dollars. 
E) Volume.

Question 11

A key disincentive effect of departmental cost allocation can occur when:

Accepted Answer

A) Allocated costs are less than external purchase costs 
B) Managers do not understand the incentives in the allocation base 
C) The allocation base is actual usage 
D) The allocation base is budgeted usage 
E) The allocation base is greater than usage

Question 12

Russell Co.produces three products - U,V,and W - from a joint process.Each product may be sold at the split-off point or processed further.Additional processing requires no special facilities,and production costs of further processing are entirely variable and traceable to the products involved.Last year all three products were processed beyond split-off.Joint production costs for the year were $70,000.Sales values and costs needed to evaluate Russell's production policy follow. 
The amount of joint costs allocated to product W using the net realizable value method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $24,159. 
B) $28,496. 
C) $18,624. 
D) $17,345. 
E) $32,110.

Question 13

Place the following phases of the departmental approach in the correct order.
1)Allocate the production department costs to products.
2)Allocate service costs to the overhead costs.
3)Allocate the service department costs to the production department.
4)Trace all direct costs and allocate overhead costs to both the service and production departments.

Accepted Answer

A) 3,4,1,2. 
B) 4,3,2,1. 
C) 4,3,1. 
D) 3,2,1. 
E) 1,3,2.

Question 14

The Sakicki Manufacturing Company has two service departments - purchasing and maintenance,and two production departments - fabrication and assembly.The distribution of each service department's efforts to the other departments is shown below: 
The direct operating costs of the departments (including both variable and fixed costs)were as follows: Purchasing $96,000.Maintenance 18,000.Fabrication 72,000.Assembly 48,000.The total cost accumulated in the fabrication department using the direct method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $114,800. 
B) $119,200. 
C) $117,000. 
D) $108,000. 
E) $126,000.

Question 15

Which is not a common method used to allocate costs under the departmental approach?

Accepted Answer

A) Dual method. 
B) Step method. 
C) Reciprocal method. 
D) Direct method.

Question 16

The Sakicki Manufacturing Company has two service departments - purchasing and maintenance,and two production departments - fabrication and assembly.The distribution of each service department's efforts to the other departments is shown below: 
The direct operating costs of the departments (including both variable and fixed costs)were as follows: Purchasing $96,000.Maintenance 18,000.Fabrication 72,000.Assembly 48,000.The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $114,800. 
B) $119,200. 
C) $117,000. 
D) $108,000. 
E) $126,000.

Question 17

Which of the following statements best describes a by-product?

Accepted Answer

A) A product that is produced from material that would otherwise be scrap. 
B) A product that has a similar unit selling price than the main product. 
C) A product created along with the main product whose sales value does not cover its cost of production. 
D) A product that usually produces a small amount of revenue when compared to the main product's revenue. 
E) A product that has a lower unit selling price than the main unit.

Question 18

Hatchett Inc.produces joint products L,M,and N from a joint process.Information concerning a batch produced in May at a joint cost of $75,000 was as follows: 
The amount of joint costs allocated to product M using the net realizable value method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $3,614. 
B) $11,250. 
C) $40,312. 
D) $33,434. 
E) $37,952.

Question 19

Marin Products produces three products - DBB-1,DBB-2,and DBB-3 from a joint process.Each product may be sold at the split-off point or processed further.Additional processing requires no special facilities,and production costs of further processing are entirely variable and traceable to the products involved.Key information about Marin's production,sales,and costs follows. 
The amount of joint costs allocated to product DBB-2 using the physical measure method is (calculate all ratios and percentages to 4 decimal places,for example 33.3333%,and round all dollar amounts to the nearest whole dollar):

Accepted Answer

A) $54,243. 
B) $757,895. 
C) $1,705,263. 
D) $49,202. 
E) $1,136,842.

Question 20

The most effective basis for cost allocation exists when which one of the following can be determined?

Accepted Answer

A) Cost shifting. 
B) Benefit received. 
C) Equity share. 
D) Cause and effect relationship. 
E) Ability to bear.

Exam 7: Cost Allocation: Departments, Joint Products, and By-Products

The departmental approach of cost allocation recognizes that the typical manufacturing operation involves which type(s) of departments?

By-product costing that uses the asset recognition method(s) creates: