Deck 12: Cost Allocation

Question 1

Allocation of costs to cost objectives may be described as apportion or attribute.

Answer 1

True

Question 2

The best cost driver for janitorial services is square feet.

Answer 2

True

Question 3

Products or services are the final cost objectives.

Answer 3

True

Question 4

Variable and fixed-service department costs should be allocated separately.

Question 5

If a company allocated fixed costs based on long-run plans, there is a tendency on the part of managers to underestimate their planned usage.

Question 6

There is no "best" cost allocation system.

Question 7

In the dual method of allocation, fixed costs should be allocated using budgeted cost rates times the actual cost driver level.

Question 8

In general, allocating fixed cost is less challenging than allocating variable cost.

Question 9

A cost pool is a group of individual costs that is allocated to cost objectives using multiple cost drivers.

Question 10

Companies must assign all production costs and only production costs for external financial reporting purposes.

Question 11

The use of actual cost rates for allocating variable costs of service departments protects the user departments from intervening price fluctuations.

Question 12

The predetermined lump-sum approach to allocating fixed costs is based on the short-run usage, regardless of actual usage from month to month.

Question 13

Square feet is the best cost driver for depreciation of heating and air conditioning equipment.

Question 14

A cost accounting system first assigns costs to organizational units and then accumulates these costs within the unit.

Question 15

Companies must assign all costs for internal management purposes.

Question 16

If the vast majority of costs were directly traceable, then cost allocation would be a minor issue.

Question 17

When allocating fixed costs, a predetermined lump-sum allocation based on budgeted usage should be used.

Question 18

Eventually, all direct service department costs will become indirect production department costs.

Question 19

Some cost-allocation methods provide for penalties to managers that over-predict potential usage of a cost driver.

Question 20

Examples of service departments include personnel, legal, and corporate accounting.

Question 21

When using the step-down method, once a service department's costs are allocated to other departments, nothing is ever allocated back to it.

Question 22

The use of cost drivers such as division revenue or total assets represent an "ability to bear" philosophy.

Question 23

The preferred cost driver for central services is either actual or estimated usage.

Question 24

The step-down method sequence of allocations begins with the service department that renders the greatest service to the greatest number of service departments.

Question 25

ABC systems focus on accumulating costs into key activities, rather than into organizational units.

Question 26

Direct-labor hours are a good cost driver choice for overhead costs in modern, highly automated departments.

Question 27

Power costs are normally allocated using megawatt hours as the cost driver.

Question 28

Two conventional ways of allocating joint costs to products are physical units and relative sales values.

Question 29

The cost pool should be a quantifiable measure of what causes costs.

Question 30

The names of two popular methods for allocating service department costs are the direct method and the step-up method.

Question 31

A process map represents the flow of activities, resources, and their interrelationships.

Question 32

Joint costs are allocated to main products but not to by-products.

Question 33

The direct method ignores other service departments when any given service department's costs are allocated to the revenue-producing operating) departments.

Question 34

When using the "ability to bear" philosophy in allocating central service costs, actual sales are preferable to budgeted sales.

Question 35

Cost distribution is the allocation of total departmental costs to the revenue-producing products or services.

Question 36

Direct-labor hours and machine hours are typical cost drivers in a traditional approach.

Question 37

Public relations and top corporate management overhead are examples of central services.

Question 38

Joint costs include all inputs of material, labor, and overhead costs that are incurred after the split-off point.

Question 39

The direct method is generally better because it recognizes the effects of the most significant support provided by service departments to other service departments.

Question 40

The traditional approach to cost allocation assumes that all costs are caused by a single cost driver.

Question 41

Costs are allocated for all the following purposes except to _____.

A)predict the economic effects of planning and control decisions
B)obtain reimbursement
C)determine inventory levels
D)compute income and asset valuation

Question 42

The use of budgeted service department cost rates protects using departments from _____.

A)service department efficiencies
B)price fluctuations
C)service outages
D)all of these answers are correct

Question 43

Type 2 allocations are cost that flow from _____.

A)one organizational unit to another
B)the accounting system to an organizational unit
C)one organizational unit to the product
D)the product to the customer

Question 44

Gibson Company has two production departments, Mixing and Finishing, served by one maintenance department.Budgeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $5.00.Other relevant data are as follows: $\begin{array}{lrr}& \text { Mixing } & \text { Finishing } \\\text { Long-run capacity available* } & 20,000 & 15,000 \\\text { Budgeted* } & 12,000 & 10,500 \\\text { Actual* } & 15,000 & 9,000\end{array}$ *in labor hours Actual maintenance department costs were $36,000 fixed and $100,000 variable.The amount of variable maintenance costs allocated to the Mixing Department should be _____.

A)$75,000
B)$72,000
C)$48,000
D)$62,500

Question 45

By-products normally have significant total sales values in comparison with other products emerging at the split-off point.

Question 46

Bobby Company has two production departments, Mixing and Finishing, served by one maintenance department.Budgeted fixed costs for the maintenance department were $40,000, and the variable cost per labor hour was $4.00.Other relevant data are as follows: $$\begin{array} { l r r } & \text { Mixing } & \text { Finishing } \\\text { Long-run capacity available* } & 18,000 & 12,000 \\\text { Budgeted* } & 12,000 & 10,500 \\\text { Actual* } & 15,000 & 9,000\end{array}$$ *in labor hours
Actual maintenance department costs were $36,000 fixed and $100,000 variable.The amount of fixed maintenance costs allocated to the Finishing Department should be _____.

A)$18,000
B)$16,000
C)$14,000
D)$11,250

Question 47

_____ is a cost objective.

A)Products
B)Jobs
C)Projects
D)All of these answers are correct

Question 48

Cost allocation base refers to the _____.

A)cost driver
B)total costs to be allocated
C)total allocated costs
D)cost objectives

Question 49

The preferred guidelines for allocating service department costs include _____.

A)identifying the direct and indirect costs
B)evaluating performance using allocated costs for each service department
C)establishing part or all of the details regarding cost allocation in advance of rendering the service
D)allocating variable- and fixed-cost pools simultaneously

Question 50

Joint costs are not allocated to a by-product.

Question 51

Venice Company has two production departments, Mixing and Finishing, served by one maintenance department.Budgeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $5.00.Other relevant data are as follows: $\begin{array}{lrr}&\text { Mixing}&\text { Finishing }\\\text { Long-run capacity available** } & 20,000 & 15,000 \\\text { Budgeted* } & 12,000 & 10,500 \\\text { Actual* } & 15,000 & 9,000\end{array}$ *in labor hours Actual maintenance department costs were $36,000 fixed and $100,000 variable.The amount of variable maintenance costs allocated to the Finishing Department should be _____.

A)$42,000
B)$48,000
C)$37,500
D)$45,000

Question 52

_____ is not a type of cost allocation.

A)Allocation of costs to the appropriate organizational unit
B)Reallocation of costs from service departments to production departments
C)Allocation of costs of a particular organizational unit to products or services
D)Reallocation of costs from production departments to service departments

Question 53

_____ should be used to allocate fixed costs.

A)Actual fraction of capacity used x total budgeted fixed costs
B)Budgeted fraction of capacity available for use x total budgeted fixed costs
C)Actual fraction of capacity used x actual fixed costs
D)Budgeted fraction of capacity available for use x actual fixed costs

Question 54

_____ should be used to allocate variable costs.

A)Budgeted unit rate x total budgeted units planned to be used
B)Actual unit rate x total budgeted units planned to be used
C)Budgeted unit rate x actual units used
D)Actual unit rate x actual units used

Question 55

Joint cost allocations should be ignored for decisions such as selling a joint product or processing it further.

Question 56

Revenues less costs solely associated with by-products are added to the cost of the main products.

Question 57

Type 3 allocations are cost that flow from _____.

A)one organizational unit to another
B)the accounting system to an organizational unit
C)one organizational unit to the product
D)the product to the customer

Question 58

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

Question 59

Samuel Company has two production departments, Mixing and Finishing, served by one maintenance department.Budgeted fixed costs for the maintenance department were $40,000, and the variable cost per labor hour was $4.00.Other relevant data are as follows: $\begin{array}{lrr}&\text { Mixing}&\text { Finishing }\\\text { Long-run capacity available* } & 18,000 & 12,000 \\\text { Budgeted* } & 12,000 & 10,500 \\\text { Actual* } & 15,000 & 9,000\end{array}$ *in labor hours Actual maintenance department costs were $36,000 fixed and $100,000 variable.The amount of fixed maintenance costs allocated to the Mixing Department should be _____.

A)$20,000
B)$12,000
C)$24,000
D)$14,000

Question 60

Type 1 allocations are costs that flow from _____.

A)one organizational unit to another
B)the accounting system to an organizational unit
C)one organizational unit to the product
D)the product to the customer

Question 61

Roller Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square Footage } & 1,600 & 800 & {3,200}&2,400 \\\text { Number of employees } & 16 & 24 & 48 & 64 \\\end{array}$ If the direct method is used to allocate costs, then the cost of the Personnel Department after the Maintenance Department cost allocation would be _____.

A)$33,600
B)$39,900
C)$38,640
D)$63,840

Question 62

The _____ method recognizes that some service departments support the activities in the service departments as well as those in production departments.

A)direct
B)indirect
C)step-down
D)step-up

Question 63

The preferred cost drivers for fixed-cost pools and variable-cost pools are _____.

A)capacity available and capacity used, respectively
B)capacity available and capacity available, respectively
C)capacity used and capacity available, respectively
D)capacity used and capacity used, respectively

Question 64

Euclid College recently leased a photocopy machine for $1,500 per month plus $0.04 per copy.Additional variable operating costs were $0.02 per copy.Euclid College estimated it would produce 30,000 copies per month.The Accounting Department estimated it would produce 6,000 copies, but actually produced only 4,000 copies.If Euclid College uses a predetermined rate per copy, then _____ would be allocated to the Accounting Department.

A)$540
B)$660
C)$440
D)$240

Question 65

In the step-down method, the first service department in the sequence is the one that renders the _____departments.

A)most service to all other service
B)most service to all producing
C)least service to all producing
D)least service to all other service

Question 66

Serena Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method is used to allocate costs and the Maintenance Department is allocated first, then the amount of overhead that would be allocated from Maintenance to Finishing is _____.

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

Question 67

Reciprocal services are services provided by a service department to _____.

A)a producing department
B)another service department
C)external customers
D)all of these answers are correct.

Question 68

The two methods for allocating interdepartmental service costs are the _____.

A)step-down and indirect
B)variable and fixed
C)step-up and variable
D)step-down and direct

Question 69

The _____ method is a method for allocating service department costs that ignores other service department's costs when any given service department's costs are allocated to the revenue-producing departments.

A)direct
B)indirect
C)step-down
D)step-up

Question 70

Derby Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method is used to allocate costs and the Personnel Department is allocated first, then the cost of the Finishing Department after allocation would be _____.

A)$175,000
B)$277,000
C)$279,250
D)$275,500

Question 71

Ankeny College recently leased a photocopy machine for $1,500 per month plus $0.04 per copy.Additional variable operating costs were $0.02 per copy.Ankeny College estimated it would produce 30,000 copies per month.The Accounting Department estimated it would produce 6,000 copies, but actually produced only 5,000 copies.If fixed and variable-cost pools are allocated separately, then _____ is the amount of variable cost allocated to the Accounting Department:

A)$240
B)$360
C)$300
D)$200

Question 72

Thomas Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method is used to allocate costs and the Maintenance Department is allocated first, then the cost of the Mixing Department after allocation would be _____.

A)$210,750
B)$277,000
C)$279,250
D)$275,500

Question 73

Patti Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated bsed on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be _____.

A)$54,000
B)$48,000
C)$277,000
D)$175,000

Question 74

Murphy Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are alloated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method of allocating costs is used and the Personnel Department is allocated first, then the amount of overhead that would be allocated from Personnel to Mixing is _____.

A)$31,500
B)$58,500
C)$63,000
D)$78,000

Question 75

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

A)$213,000
B)$72,000
C)$36,143
D)$105,000

Question 76

Kevin Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method of allocating costs is used and the Personnel Department is allocated first, then the amount of overhead that would be allocated from Personnel to Finishing is _____.

A)$42,000
B)$72,000
C)$31,500
D)$105,000

Question 77

The greatest virtue of the step-down method is _____.

A)its simplicity
B)the lack of understandability by managers
C)the recognition of reciprocal relationships between service departments
D)its ability to allocate production department costs to service departments

Question 78

Allocating fixed costs based on long-range plans may inadvertently encourage managers to _____.

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

Question 79

Gomez Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year _____. $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\\hline\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$ If the step-down method is used to allocate costs and the Maintenance Department is allocated first, the amount of overhead that would be allocated from Maintenance to Mixing is:

A)$36,000
B)$42,750
C)$42,000
D)$63,000

Question 80

Strongsville College recently leased a photocopy machine for $2,000 per month plus $0.04 per copy.Additional variable operating costs were $0.02 per copy.Strongsville College estimated it would produce 30,000 copies per month.The Accounting Department estimated it would produce 6,000 copies, but actually produced only 4,000 copies.If fixed and variable cost pools are allocated separately, then the amount of fixed costs allocated to the Accounting Department should be _____.

A)$240
B)$360
C)$400
D)$200