Question 1

More accurate product costing information is produced by assigning costs using&#10;A) volume-based, plantwide rates.&#10;B) volume-based, departmental rates.&#10;C) activity-based pool rates.&#10;D) All of the above produce accurate product costing information.

Accepted Answer

Activity-based costing (ABC) is the most accurate method of assigning costs to products because it takes into account the specific activities that consume resources and drive costs. ABC uses activity-based pool rates, which allocate costs based on the specific activities that drive them. Volume-based rates (both plantwide and departmental) assume that all overhead costs are driven by volume, which can lead to inaccuracies in product costing. Therefore, only choice C, activity-based pool rates, produces the most accurate product costing information.

Question 2

Support department costs are accounted for in which one of the following ways?&#10;A) They are allocated directly to units of product.&#10;B) They are allocated to producing departments and then allocated to units of product.&#10;C) They are allocated to units of product and then allocated to the producing departments.&#10;D) They are expensed as incurred.

Accepted Answer

Support department costs are first allocated to producing departments and then allocated to units of product. This is because support departments do not directly produce a product, but instead provide assistance to the producing departments. Therefore, the cost of support departments needs to be allocated to the producing departments before it can be allocated to the units of product that each department is responsible for producing. Option A is incorrect because support department costs cannot be directly allocated to units of product. Option C is incorrect because it suggests that support department costs should be allocated to units of product before being allocated to producing departments, which is not the correct order of allocation. Option D is incorrect because support department costs must be allocated to products in order to accurately determine the cost of producing each unit.

Question 3

Staff Company allocates common Building Department costs to producing departments (P1 and P2) based on space occupied, and it allocates common Personnel Department costs based on the number of employees. Space occupancy and employee data are as follows: Building
Personnel
Dept. P1
Dept. P2
Space occupied
2,000 m.
10,000 m.
120,000 m.
70,000 m.
Employees
6
10
80
50
If Staff Company uses the sequential allocation method and the support department with the highest percentage of interdepartmental services is allocated first, the ratio representing the portion of Personnel Department costs allocated to Department P2 is

A) 50/146.
B) 90/140.
C) 50/140.
D) 50/130.

C

Accepted Answer

C

Question 4

Which of the following methods of assigning costs is based on convenience or some assumed linkage, and reduces the overall accuracy of the cost assignments?&#10;A) direct tracing&#10;B) cost driver tracing&#10;C) allocation&#10;D) all of the above

Accepted Answer

Allocation is the method of assigning costs based on convenience or assumed linkage, which reduces the overall accuracy of the cost assignments. Direct tracing and cost driver tracing are both more accurate methods of assigning costs.

Question 5

Support departments&#10;A) are responsible for manufacturing the products sold to customers.&#10;B) work directly on the products of the firm.&#10;C) provide services directly to customers.&#10;D) provide essential services to the producing departments.

Accepted Answer

Support departments do not directly work on the products or provide services directly to customers. Instead, they provide essential services and support to the producing departments, such as HR, IT, accounting, and maintenance.

Question 6

When applied overhead exceeds actual overhead cost,&#10;A) over-applied(absorbed) overhead is added to cost of goods sold.&#10;B) overapplied overhead is deducted from cost of goods sold.&#10;C) underapplied overhead is added to cost of goods sold.&#10;D) underapplied overhead is deducted from cost of goods sold.

Accepted Answer

When applied overhead exceeds actual overhead costs, it means that overhead has been overapplied. In such cases, the overapplied overhead is deducted from the cost of goods sold to correct the overestimation.

Question 7

A possible causal factor to use when allocating cafeteria costs would be&#10;A) number of square feet.&#10;B) number of direct labour hours.&#10;C) number of employees.&#10;D) appraised value of square footage.

Accepted Answer

Number of employees is the most logical choice for allocating cafeteria costs as the number of employees using the cafeteria is directly correlated with the cost incurred. Allocating costs based on square footage or appraised value of square footage would not accurately reflect the usage of the cafeteria. Similarly, allocating costs based on direct labour hours would not accurately reflect employee usage of the cafeteria as not all employees may take a lunch break.

Question 8

Which of the following is a key consideration in selecting an allocation base?&#10;A) The allocation base should have an indirect association with the cost objective.&#10;B) The allocation base should be difficult to measure.&#10;C) There should be logical association between the allocation base and the incidence of costs.&#10;D) The allocation base should be out of the control of management.

Accepted Answer

The allocation base should have a logical association with the incidence of costs. This means that the allocation base should be able to allocate costs in a way that reflects the actual consumption of the resources by the cost object. Option A is incorrect because the allocation base should have a direct association with the cost objective, not an indirect one. Option B is incorrect because the allocation base should not be difficult to measure as this can lead to unreliable allocations. Option D is incorrect because the allocation base should be within the control of management.

Question 9

____ refers to the assignment of indirect costs to cost objects.&#10;A) Allocation&#10;B) Direct tracing&#10;C) Physical observation&#10;D) Cost management

Accepted Answer

Allocation refers to the process of assigning indirect costs to cost objects, as these costs cannot be directly traced to a single cost object.

Question 10

Examples of producing departments include all of the following EXCEPT&#10;A) mixing.&#10;B) molding.&#10;C) packaging.&#10;D) accounting.

Accepted Answer

Producing departments are those that directly involved in the production process while accounting is not. Mixing, molding, and packaging are all examples of producing departments.

Question 11

When actual overhead cost exceeds overhead applied to production,&#10;A) over-absorbed overhead is added to cost of goods sold.&#10;B) over-absorbed overhead is deducted from cost of goods sold.&#10;C) under-absorbed overhead is added to cost of goods sold.&#10;D) under-absorbed overhead is deducted from cost of goods sold.

Accepted Answer

The answer of When actual overhead cost exceeds overhead applied...

Question 12

An activity-based costing system uses which of the following procedures?&#10;A) Overhead costs are traced to departments, then costs are traced to products.&#10;B) Overhead costs are traced to activities, then costs are traced to products.&#10;C) Overhead costs are traced directly to products.&#10;D) All overhead costs are expensed as incurred.

Accepted Answer

The answer of An activity-based costing system uses which of...

Question 13

The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:&#10;A) absorption costing.&#10;B) FIFO.&#10;C) the weighted average cost method.&#10;D) conversion costing.

Accepted Answer

The answer of The method of accounting for inventory that...

Question 14

Traditional-based product costing uses which of the following procedures?&#10;A) Overhead costs are traced to departments, then costs are traced to products.&#10;B) Overhead costs are traced to activities, then costs are traced to products.&#10;C) Overhead costs are traced directly to products.&#10;D) All overhead costs are expensed as incurred.

Accepted Answer

The answer of Traditional-based product costing uses which of the...

Question 15

The optimal level in the trade-off between measurement and error costs is when&#10;A) measurement costs are greater than error costs.&#10;B) measurement costs are less than error costs.&#10;C) measurement costs equal error costs.&#10;D) the total of measurement costs and error costs are maximized.

Accepted Answer

The answer of The optimal level in the trade-off between...

Question 16

Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of £30,000 are allocated on the basis of standard service used. The Personnel Department costs of £4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are £9,000 and £15,000, respectively. Data on standard service hours and number of employees are as follows:
MD
PD
P1
P2
Standard service hours used
100
50
300
150
Number of employees
10
20
90
90
Direct labour hours
50
50
250
250
Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

A) £12,750.
B) £24,000.
C) £20,295.
D) £21,750.

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Accepted Answer

The answer of Oaks Company has two support departments, Maintenance...

Question 17

Which of the following allocation methods fully recognizes services that support departments provide to each other?&#10;A) direct method&#10;B) sequential method&#10;C) reciprocal method&#10;D) all of the above

Accepted Answer

The answer of Which of the following allocation methods fully...

Question 18

Examples of support departments include all of the following EXCEPT&#10;A) maintenance.&#10;B) personnel.&#10;C) machining.&#10;D) data processing.

Accepted Answer

The answer of Examples of support departments include all of...

Question 19

Which of the following departments is NOT a support department?&#10;A) food services&#10;B) bottling&#10;C) health services&#10;D) security

Accepted Answer

The answer of Which of the following departments is NOT...

Question 20

The calculation of unit costs is important for&#10;A) inventory valuation.&#10;B) income determination.&#10;C) pricing.&#10;D) all of the above.

Accepted Answer

The answer of The calculation of unit costs is important...

Question 21

Which of the following is a reason to accumulate and separately assign costs by departments?&#10;A) The company wants to reduce the complexity of its cost accounting system.&#10;B) The company is comprised of multiple departments, each of which exhibit unique cost behaviour patterns.&#10;C) The company wishes to implement an activity based costing system.&#10;D) The company has a large amount of capital invested in human resource training.

Accepted Answer

The answer of Which of the following is a reason...

Question 22

Explain the key considerations in establishing cost pools and in selecting an allocation base.

Accepted Answer

The answer of Explain the key considerations in establishing cost...

Question 23

____ is (are) a method of allocating service department costs that gives partial recognition to interdepartmental services by using a methodology that allocates service department costs sequentially both to the remaining service departments and the producing departments.

A) The direct method
B) The step method
C) The linear algebra method
D) The direct and step methods

Accepted Answer

The answer of ____ is (are) a method of allocating...

Question 24

Service departments:&#10;A) are responsible for manufacturing the products sold to customers.&#10;B) work directly on the firm's products.&#10;C) provide services directly to customers.&#10;D) provide support services to the producing departments.

Accepted Answer

The answer of Service departments:&#10;A) are responsible for manufacturing the...

Question 25

Define the terms cost objectives, cost pools, and allocation bases.

Accepted Answer

The answer of Define the terms cost objectives, cost pools,...

Question 26

Although adding more activity cost pools to an activity-based costing system may improve the accuracy of product costing, this increase in accuracy must be judged against:&#10;A) the cost of the product.&#10;B) the price of the product.&#10;C) the cost of developing and maintaining the additional cost pools.&#10;D) all of the above.

Accepted Answer

The answer of Although adding more activity cost pools to...

Question 27

Which of the following principles should be applied when the step method of allocating service department costs is used?&#10;A) The sequence of allocation among departments should be randomly selected.&#10;B) The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest.&#10;C) The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest.&#10;D) All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected.

Accepted Answer

The answer of Which of the following principles should be...

Question 28

Which of the following accurately describes advantages and disadvantages of employing a system of allocation that uses a plant-wide rate?&#10;A) The plant-wide rate approach is the simplest to apply, but it is also the most costly to implement.&#10;B) The plant-wide rate approach is the simplest to apply, but most likely provides the least accurate product costs.&#10;C) The plant-wide rate may be straightforward, but it is not appropriate for small businesses that offer a single service or product.&#10;D) The plant-wide rate really offers no advantage whatsoever.

Accepted Answer

The answer of Which of the following accurately describes advantages...

Question 29

Which of the following characteristics is a consequence of the implementation of a plant-wide allocation rate?&#10;A) The uniqueness of individual departments is not reflected in the cost numbers.&#10;B) Allocations are first conducted among departments, and then aggregated for the plant as a whole.&#10;C) Downstream costs are not measured at all.&#10;D) Managers have absolutely no incentive to control costs.

Accepted Answer

The answer of Which of the following characteristics is a...

Deck 3: Cost Assignment