Question 1

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

Accepted Answer

A)  Floor space of each department. 
B)  Relative number of items each department had on sale. 
C)  Number of customers to enter each department. 
D)  An equal amount of cost for each department. 
E)  Proportion of sales of each department.

Question 2

Plans that identify costs and expenses under each manager's control prior to the reporting period are called:

Accepted Answer

A)  Cost accounting systems. 
B)  Managerial accounting systems. 
C)  Responsibility accounting systems. 
D)  Responsibility accounting budgets. 
E)  Activity-based accounting systems.

Question 3

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

Accepted Answer

A) True 
 B)False

Question 4

A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common.

Accepted Answer

A)  $0. 
B)  $17,500. 
C)  $23,333. 
D)  $35,000. 
E)  $70,000.

Question 5

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead): Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively is:

Accepted Answer

A)  $21.60; $.54. 
B)  $54.00; $27.00. 
C)  $60.00; $60.00. 
D)  $108.00; $2.70. 
E)  $200.00; $16,000.00

Question 6

Costs that the manager does not have the power to determine or at least strongly influence are:

Accepted Answer

A)  Variable costs. 
B)  Uncontrollable costs. 
C)  Indirect costs. 
D)  Direct costs. 
E)  Joint costs.

Question 7

A __________________________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.

Accepted Answer

The answer of A __________________________ helps control costs and expenses...

Question 8

Mace Department store allocates its service department expenses to its various operating (sales) departments. The following data is available: The following information is available for its three operating (sales) departments:
What is the total expense allocated to Department B?

Accepted Answer

A)  $29,375. 
B)  $30,462. 
C)  $30,500. 
D)  $30,775. 
E)  $32,160.

Question 9

In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring the joint cost.

Accepted Answer

A) True 
 B)False

Question 10

Baker Corporation has two operating departments, Machining and Assembly, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: The amount of the total office expenses that should be allocated to Assembly for the current period is:

Accepted Answer

A)  $35,750. 
B)  $45,000. 
C)  $54,250. 
D)  $90,000. 
E)  $600,000.

Question 11

A sawmill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. Type 1 - 400,000 bd. ft. priced to sell at $0.12 per bd. ft.
Type 2 - 400,000 bd. ft. priced to sell at $0.06 per bd. ft.
Type 3 - 200,000 bd. ft. priced to sell at $0.04 per bd. ft.

Accepted Answer

A)  $16,000; $16,000. 
B)  $13,333; $4,444. 
C)  $40,000; $24,000. 
D)  $24,000; $12,000. 
E)  $24,000; $8,000.

Question 12

Regardless of the system used in departmental cost analysis:

Accepted Answer

A)  Direct costs are allocated, indirect costs are not. 
B)  Indirect costs are allocated, direct costs are not. 
C)  Both direct and indirect costs are allocated. 
D)  Neither direct nor indirect costs are allocated. 
E)  Total departmental costs will always be the same.

Question 13

An expense that does not require allocation between departments is a(n):

Accepted Answer

A)  Common expense. 
B)  Indirect expense. 
C)  Direct expense. 
D)  Administrative expense. 
E)  All of these.

Question 14

A selling department is usually evaluated as a profit center.

Accepted Answer

A) True 
 B)False

Question 15

Community Technical College allocates administrative costs to its teaching departments based on the number of students enrolled, while maintenance and utilities are allocated based on square feet of classrooms. Based on the information below, what is the total amount of expenses allocated to each department (rounded to the nearest dollar) if administrative costs for the college were $150,000, maintenance expenses were $70,000, and utilities were $85,000?

Accepted Answer

The answer of Community Technical College allocates administrative costs to...

Question 16

Naples operates a retail store and has two service departments and two operating departments, Shoes and Clothing. During the current year, the departments had the following direct expenses and occupied the flowing amount of floor space.
The advertising department developed and aired 150 spots. Of these spots, 60 spots were for Shoes and 90 spots were for Clothing. The store sold $1,500,000 of merchandise during the year; $675,000 in Shoes and $825,000 in Clothing. Indirect expenses include rent, utilities, and insurance expense. Total indirect expenses of $220,000 are allocated to all departments. Prepare a departmental expense allocation spreadsheet for Naples. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) allocate the indirect expenses to each department on the basis of floor space occupied, (3) the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4) the administrative department's expenses based on the amount of sales. Complete the departmental expense allocation spreadsheet below. Provide supporting computations for the expense allocations below the spreadsheet.

Accepted Answer

The answer of Naples operates a retail store and has...

Question 17

Larabee Company produces two types of product, flat and round, on the same production line. For the current period, the company reports the following data.
Larabee's controller wishes to apply activity-based costing (ABC) to allocate the $60,000 of overhead costs incurred by the two product lines to see whether cost per unit would change markedly from that reported above. She has collected the following information.
She has also collected the following information about the cost drivers for each category (cost pool) and the amount of each driver used by the two product lines.
Assign these three overhead cost pools to each of the two products using ABC. Show each overhead cost allocation by product and the total overhead allocated to each product. Determine average cost per unit for each of the two products using ABC. (Round your answer to 2 decimal places.) Which overhead cost allocation method would you recommend to the controller?

Accepted Answer

The answer of Larabee Company produces two types of product,...

Question 18

In a responsibility accounting system:

Accepted Answer

A)  Controllable costs are assigned to managers who are responsible for them. 
B)  Each accounting report contains all items allocated to a responsibility center. 
C)  Organized and clear lines of authority and responsibility are only incidental. 
D)  All managers at a given level have equal authority and responsibility. 
E)  All of these.

Question 19

Allocations of joint product costs can be based on the relative sales values of the products:

Accepted Answer

A)  And never on the relative physical quantities of the products. 
B)  Plus an adjustment for future excess margins. 
C)  And not on any other basis. 
D)  At the "split-off point". 
E)  Only if the products contain both direct and indirect costs.

Question 20

Investment center managers are evaluated on their use of center assets to generate income.

Accepted Answer

A) True 
 B)False

Exam 21: Cost Allocation and Performance Measurement

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

Plans that identify costs and expenses under each manager's control prior to the reporting period are called:

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common.

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead) : Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively is:

Costs that the manager does not have the power to determine or at least strongly influence are:

A __________________________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.

Mace Department store allocates its service department expenses to its various operating (sales) departments. The following data is available: The following information is available for its three operating (sales) departments: What is the total expense allocated to Department B?

In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring the joint cost.

Regardless of the system used in departmental cost analysis:

An expense that does not require allocation between departments is a(n) :

A selling department is usually evaluated as a profit center.

In a responsibility accounting system:

Allocations of joint product costs can be based on the relative sales values of the products:

Investment center managers are evaluated on their use of center assets to generate income.