Question 1

The preferred cost allocation base that can be used to allocate central corporate support costs to products is ________.

Accepted Answer

A)  sales 
B)  cost of goods sold 
C)  total assets 
D)  a measure of usage

Question 2

Allocating fixed costs based on long-range plans may inadvertently result in a tendency of mangers to ________.

Accepted Answer

A)  underutilize available capacity 
B)  overestimate planned usage 
C)  underestimate planned usage 
D)  overestimate planned costs

Question 3

Lindsey Company has two service departments,Maintenance and Human Resources.Lindsey Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\
&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \
\text { Direct costs } & \$ 50,400 & \$ 35,000 & \$ 42,000 & \$ 70,000 \
\text { Square footage } & 1,600 & 800 & 3,200 & 2,400 \
\text { Number of employees } & 16 & 24 & 40 & 60
\end{array}$
If the direct method is used to allocate service department costs,then the cost allocated from the Human Resources Department to the Finishing Department is ________.

Accepted Answer

A)  $14,000 
B)  $16,800 
C)  $21,000 
D)  $33,600

Question 4

Two conventional ways of allocating joint costs to jointly-produced products are physical units and relative sales value.

Accepted Answer

A) True 
 B)False

Question 5

Under the ABC approach to cost allocation,which of the following steps is NOT used in allocating costs to products?

Accepted Answer

A)  Determine the key components of the system and the relationship among them. 
B)  Calculate and interpret the new ABC information. 
C)  Collect relevant data concerning costs and the physical flow of cost-allocation base units among resources and activities. 
D)  Select cost pools and cost-allocation bases in each producing department and assign all indirect costs to the appropriate cost pool.

Question 6

In the step-down method,the first service department used in the sequence to allocate service department costs is the department that renders the ________.

Accepted Answer

A)  greatest service as measured by physical capacity 
B)  greatest service as measured by total employees 
C)  greatest service as measured by costs to the other service departments 
D)  greatest service as measured by costs to the producing departments

Question 7

Monday Company has two departments.Relevant information is presented below:
$\begin{array}{lll}&\text { Department } 1&\text { Department } 2\
\text { Budgeted total assets } & \$ 500,000 & \$ 200,000 \
\text { Actual total assets } & \$ 600,000 & \$ 400,000 \
\text { Budgeted sales } & \$ 400,000 & \$ 2,000,000 \
\text { Actual sales } & \$ 200,000 & \$ 2,100,000
\end{array}$
Total company-wide advertising costs are $360,000.The advertising costs are allocated based on sales using the preferred approach.What amount of advertising costs is allocated to Department 2?

Accepted Answer

A)  $37,500 
B)  $50,000 
C)  $262,500 
D)  $300,000

Question 8

Santelle Company processes copper ore into two products,C and U.The ore costs $5 per pound and conversion costs are $15 per pound.Santelle Company plans to produce 40,000 pounds of Product C and 20,000 pounds of Product U from 60,000 pounds of ore.Product C sells for $30 per pound and Product U sells for $40 per pound.Assume the company uses the relative-sales-value method of allocating joint costs.What amount of joint costs is allocated to Product U?

Accepted Answer

A)  $0 
B)  $400,000 
C)  $480,000 
D)  $685,714

Question 9

For costs that accountants cannot directly trace to products or services,accountants use ________ or ________.

Accepted Answer

A)  ABC methods; payback method 
B)  cost-budgeting methods; ignore remaining costs 
C)  sensitivity analysis; financial planning models 
D)  cost-allocation methods; leave costs unallocated

Question 10

The authors recommend that ________ costs should not be allocated to products or services.

Accepted Answer

A)  nonproduction 
B)  value-chain functions 
C)  central corporate support costs 
D)  service department costs

Question 11

Why do managers assign the direct costs of service departments to customers instead of the producing department?

Accepted Answer

A)  for ease of calculation 
B)  to reduce bookkeeping costs 
C)  to prevent cost distortions due to the use of a cost allocation base by the producing department that has little relationship to the cause of customer service costs 
D)  because customers are the only cost objects with direct costs

Question 12

When determining product costs,the last step in the traditional approach to cost allocation is ________.

Accepted Answer

A)  divide costs in each producing department into direct costs and indirect costs 
B)  trace direct costs to products 
C)  select cost pools and cost allocation bases in each production department and assign indirect department costs to the appropriate cost pool 
D)  allocate the costs in each cost pool to the products in proportion to their usage of the related cost-allocation base

Question 13

Joint costs from producing multiple products are allocated to main products and to by-products.

Accepted Answer

A) True 
 B)False

Question 14

Under the traditional approach to cost allocation,the costs in each cost pool are allocated to a product in proportion to the product's usage of the ________.

Accepted Answer

A)  available capacity 
B)  budgeted capacity 
C)  cost-allocation base 
D)  cost pool

Question 15

Why do companies develop cost allocation methods to assign service department costs to producing departments?

Accepted Answer

A)  to identify the total cost of production 
B)  to accurately determine the cost of a product 
C)  to develop transfer prices for products 
D)  A and B

Question 16

Budgeted cost rates are used for allocating variable costs of service departments to user departments because ________.

Accepted Answer

A)  it provides service departments a greater incentive to be efficient 
B)  it protects user departments from inefficiencies in service departments 
C)  it protects managers in service departments from inflation 
D)  A and B

Question 17

The relative-sales-value method of allocating joint costs requires a common physical unit for measuring the output of each product.

Accepted Answer

A) True 
 B)False

Question 18

Gonzalez Company has two service departments,Maintenance and Human Resources.Gonzalez Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\
&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\
\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } & 8 & 12 & 24 & 32
\end{array}$
Assume the step-down method is used to allocate service department costs,and the Maintenance Department is allocated first.The amount of cost allocated from the Maintenance Department to the Finishing Department would be ________.

Accepted Answer

A)  $31,500 
B)  $42,750 
C)  $47,250 
D)  $57,000

Question 19

Marvelous Company has two service departments,Maintenance and Human Resources.Marvelous Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\
&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \
\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \
\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \
\text { Number of employees }&16 & 24 & 48 & 64
\end{array}$
Assume the step-down method is used to allocate service department costs and the Maintenance Department is allocated first.Then the amount of cost allocated from the Human Resources Department to the Maintenance Department would be ________.

Accepted Answer

A)  $0 
B)  $3,539 
C)  $4,200 
D)  $4,998

Question 20

Jerome Company has two service departments,Maintenance and Human Resources.Jerome Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resource costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\
&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\
\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } & 8 & 12 & 24 & 32
\end{array}$
If the direct method is used to allocate service department costs,then the total cost of the Finishing Department after allocation would be ________.

Accepted Answer

A)  $48,000 
B)  $102,000 
C)  $175,000 
D)  $277,000

Exam 12: Cost Allocation

The preferred cost allocation base that can be used to allocate central corporate support costs to products is ________.

Allocating fixed costs based on long-range plans may inadvertently result in a tendency of mangers to ________.

Two conventional ways of allocating joint costs to jointly-produced products are physical units and relative sales value.

Under the ABC approach to cost allocation,which of the following steps is NOT used in allocating costs to products?

In the step-down method,the first service department used in the sequence to allocate service department costs is the department that renders the ________.

For costs that accountants cannot directly trace to products or services,accountants use or .

The authors recommend that ________ costs should not be allocated to products or services.

Why do managers assign the direct costs of service departments to customers instead of the producing department?

When determining product costs,the last step in the traditional approach to cost allocation is ________.

Joint costs from producing multiple products are allocated to main products and to by-products.

Under the traditional approach to cost allocation,the costs in each cost pool are allocated to a product in proportion to the product's usage of the ________.

Why do companies develop cost allocation methods to assign service department costs to producing departments?

Budgeted cost rates are used for allocating variable costs of service departments to user departments because ________.

The relative-sales-value method of allocating joint costs requires a common physical unit for measuring the output of each product.