Deck 12: Cost Accumulation, Tracing, and Allocation

Question 1

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.

Answer 1

C
Explanation: Direct costs can be traced to cost objects in a cost-effective manner. Departmental managers' salaries are easily traceable to the departments.

Question 2

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.

Answer 2

D
Explanation: Direct costs can be traced to cost objects in a cost-effective manner. The salary is a fixed cost that cannot be directly traced to the cost of making hamburgers.

Question 3

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.

Answer 3

C
Explanation: The cost object is the custom chairs. Direct costs, such as wood, can be traced to the custom chairs in a cost-effective manner. Indirect costs, such as glue and varnish, cannot be traced to the custom chairs in a cost-effective manner.

Question 4

Select the false statement from the following.

A) Only direct costs are traced to cost objects.
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 5

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?

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

Question 6

Overhead costs include:

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

Question 7

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 8

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.

Question 9

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 10

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 11

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 12

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 13

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 14

Select the incorrect statement from the following.

A) The difference between a direct cost and an indirect cost is that a direct cost relates to a given cost object while an indirect cost does not.
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 15

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 16

Which of the following is not an example of a cost object and its related cost driver?

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

Question 17

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 18

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 19

Cost objects may be:

A) Products.
B) Services.
C) Departments.
D) All of the answers are correct.

Question 20

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 21

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: Total Miles Traveled:
The amount of track improvement cost that should be allocated to the Western Division is: (Do not round intermediate calculations.)

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

Question 22

Sheddon Industries produces two products. The products' identified costs are as follows: 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 23

Which of the following statements is false?

A) Both direct and indirect costs can be assigned to a cost object.
B) Cost drivers are often selected based on the availability of information.
C) Volume measures are good drivers for fixed overhead costs.
D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.

Question 24

Sheddon Industries produces two products. The products' identified costs are as follows: The company's overhead costs of $108,000 are allocated based on direct labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What is the cost per unit for product B? (Do not round your intermediate calculations.)

A) $7.80
B) $22.20
C) $16.80
D) None of the answers are correct.

Question 25

State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor?

A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty.
B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty.
C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester.
D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

Question 26

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 27

The process of dividing a total cost into parts and assigning it to cost objects is known as:

A) cost tracing.
B) cost division.
C) cost allocation.
D) None of the answers are correct.

Question 28

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $360,000 a year. It is estimated that these employees move 600,000 pounds of material per year. If 60,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? (Do not round intermediate calculations.)

A) $36,000
B) $24,000
C) $50,000
D) $38,000

Question 29

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers: Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round your answer to the nearest dollar.)

A) $33,333
B) $29,412
C) $25,081
D) $34,884

Question 30

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 31

Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?

A) $175
B) $195
C) $415
D) $290

Question 32

Which of the following is not a step in allocating indirect costs to cost objects?

A) Multiply the allocation rate by the weight of the cost driver.
B) Trace direct costs to individual cost pools.
C) Compute an allocation rate by dividing the total cost to be allocated by the total cost driver volume.
D) All of the answers are steps in allocating indirect costs.

Question 33

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?

A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses

Question 34

Selection of a cost driver depends on:

A) The availability of information for both the cost and the potential cost driver.
B) A cause-and-effect relationship between the cost driver and the cost.
C) Judgment of management.
D) All of the answers are correct.

Question 35

Marsden Company has three departments occupying the following amount of floor space: 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 36

For a manufacturer, measures of volume may include:

A) Number of units produced.
B) Number of square feet occupied.
C) Amount of direct materials used in production.
D) Both number of units produced and amount of direct materials used in production are correct.

Question 37

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $120,000 at the beginning of the year was expected to deliver 200,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations.)

A) $21,818
B) $30,000
C) $2,000
D) None of the answers are correct.

Question 38

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 39

During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:

A) Number of homes built during the month.
B) Number of months in the year.
C) Number of homes built during the year.
D) Size of the home.

Question 40

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 41

A factor having a "cause and effect" relationship with a cost object is called a(n):

A) cost driver
B) allocation base
C) direct cost
D) indirect cost

Question 42

Allocation of costs to various cost objects may affect:

A) managers' performance evaluation.
B) the overall profitability of a company.
C) the apparent profitability of the various products a company makes.
D) managers' performance evaluation and the apparent profitability of the various products a company makes.

Question 43

Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following should not be treated as direct costs, assuming the cost object is individual clocks?

A) The clock face
B) The timing mechanism for each clock
C) Wood
D) Depreciation on clock-making equipment

Question 44

Assume that a factory seeks to allocate rent to several departments that occupy the factory. The factory is occupied by all the departments. Which of the following is the most logical cost driver for allocating the factory rent?

A) Number of employees
B) Square footage occupied by each department
C) Machine hours
D) Number of labor hours in each department

Question 45

Which formula best represents the first step used to allocate an indirect cost to a cost object?

A) Total cost to be allocated divided by cost driver
B) Cost driver divided by allocation rate
C) Cost driver divided by total cost to be allocated
D) Allocation rate divided by total cost to be allocated

Question 46

Which of the following statements is correct regarding direct and indirect costs?

A) Direct costs cannot easily be traced to a cost object, whereas indirect costs can be easily traced to a cost object.
B) Direct costs can be easily traced to a cost object, whereas indirect costs cannot be easily traced to a cost object.
C) Direct costs are always relevant to a particular cost decision, whereas indirect costs are never relevant to a cost decision.
D) Direct costs are never relevant to a particular cost decision, whereas indirect costs are always relevant to a cost decision.

Question 47

Jiminez Company paid its annual property tax of $6,000 on its manufacturing facility in January. The company expects to make 4,000 units of product during the year. During January, 300 units of product were produced. Based on this information:

A) $450 of the property tax cost should be allocated to the January production.
B) $1,500 of the property tax cost should be allocated to the January production.
C) $6,000 of the property tax cost should be assigned to the January production.
D) $500 of the property tax cost should be allocated to the January production.

Question 48

Which of the following is an appropriate cost driver for allocating indirect costs to a human resources department in a service company?

A) Number of employees
B) Number of customers
C) Square footage of office space
D) Either number of employees or square footage of office space depending on the nature of the indirect cost

Question 49

Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of the year, Danforth estimated that total annual fixed overhead costs would amount to $60,000. Further, Danforth estimated that the annual volume of production would be 1,000 units of product. Based on these estimates, Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year. As predicted, the actual volume of production amounted to 1,000 units of product. However, actual fixed overhead costs amounted to $56,000. Based on this information alone:

A) a lower than appropriate selling price was assigned to products during the year.
B) a higher than appropriate selling price was assigned to products during the year.
C) the correct selling price was assigned to products during the year.
D) the answer cannot be determined from the information provided.

Question 50

Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department?

A) Salary of the clock production supervisor
B) Depreciation on the factory building
C) Depreciation on clock-making equipment
D) All of the answers are correct.

Question 51

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. During the upcoming, the company expects to make 2,000 comforters. With respect to the comforters how would the fabric used to make the comforters be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 52

Herald Manufacturing Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production on a monthly basis. At the end of the accounting period it was determined that actual overhead cost was less than the estimated overhead cost and that the actual volume of production was higher than estimated. Based on this information alone:

A) The correct amount of cost was assigned to products during the accounting period.
B) Too much cost was assigned to products during the accounting period.
C) Too little cost was assigned to products during the accounting period.
D) The answer cannot be determined from the information provided.

Question 53

Which of the following is not a true statement regarding the pooling of indirect costs?

A) Costs that have been pooled for one purpose may require disaggregation for a different purpose.
B) Pooling costs that have different cost drivers may result in unreliable cost allocation.
C) A single cost pool will have more than one cost driver for different cost objects.
D) Pooled costs may require disaggregation when allocating costs for different purposes.

Question 54

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 55

All of the following are examples of indirect costs that can be classified as being variable costs except:

A) Utilities.
B) Material handling costs.
C) Production supervisor salaries.
D) Transportation costs.

Question 56

Indirect costs are often pooled, and not allocated individually because:

A) individual allocation would be more timely.
B) individual allocation would be more accurate.
C) individual allocation would be tedious.
D) the benefits of individual allocation of indirect costs are greater than the costs.

Question 57

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: The predetermined overhead rate based on units produced is: (rounded to the nearest penny.)

A) $1.50 per unit.
B) $2.67 per unit.
C) $18.00 per unit.
D) $42.00 per unit.

Question 58

Pets n Pals is attempting to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost?

A) Fees paid to external accountant for corporate audit
B) Cost of operating company owned vehicles by the store
C) Salary of store manager
D) Cost of aquariums used to display exotic fish

Question 59

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the hourly wages of sewing machine operators be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 60

Which of the following regarding direct costs is a correct statement?

A) Direct costs are always fixed costs.
B) Direct costs are always variable costs.
C) Direct costs are easily traced to cost objects.
D) Direct costs are never selling and administrative expenses.

Question 61

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

Question 62

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

Question 63

Allegheny Community College operates four departments. The square footage used by each department is shown below. Allegheny's annual building rental cost is $320,000
What amount of rent expense that should be allocated to the Sciences Department?

A) $60,000
B) $80,000
C) $120,000
D) $106,667

Question 64

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

Question 65

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

Question 66

Allegheny Community College operates four departments. The square footage used by each department is shown below. Allegheny's annual building rental cost is $320,000.
What amount of rent expense that should be allocated to the Technology Department?

A) $60,000
B) $80,000
C) $120,000
D) $192,000

Question 67

The following are Acme's production costs for the quarter ended September 30^th: What amount of costs should be traced to specific products in the process?

A) $150,000
B) $175,000
C) $225,000
D) $325,000

Question 68

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

Question 69

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

Question 70

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 71

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 72

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

Question 73

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

Question 74

Which of the following statements is incorrect?

A) A predetermined overhead rate may be used to allocate overhead costs when volume varies during the year.
B) A predetermined overhead rate is calculated using actual cost and volume data.
C) A predetermined overhead rate is calculated by dividing costs by volume, using a measure of volume such as direct labor hours or direct materials cost.
D) A company may need to allocate overhead costs to products to make pricing decisions for the products.

Question 75

Which of the following best describes the term used to assign indirect costs to a cost object?

A) Cost tracing
B) Cost allocation
C) Cost assignment
D) Cost accumulation

Question 76

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

Question 77

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 78

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

Question 79

Which of the following is not an important factor in determining the appropriate cost driver to use in allocating a cost?

A) A cause-and-effect relationship between the cost and the cost driver
B) The availability of information about the cost and cost driver
C) The ability of the cost driver to allocate indirect costs to cost objects
D) All of the answers are important factors in determining the appropriate cost driver to use in allocating a cost

Question 80

Nature's Soap manufactures Bar soap and Liquid soap. Of the following costs, which would be an indirect cost to the Liquid Department?

A) Liquid manager's salary
B) Manufacturing plant insurance
C) Depreciation of the liquefying equipment
D) Liquid Fragrance