Deck 5: Cost Allocation and Activity-Based Costing Systems

Question 1

Activity-based accounting systems classify more costs as direct, thus simplifying and reducing the cost of a traditional system.

Answer 1

False

Question 2

The goal of activity-based costing is to trace costs to products or services instead of arbitrarily allocating them.

Answer 2

True

Question 3

In activity-based costing, costs are classified as either direct or indirect.

Answer 3

False

Question 4

Producing departments are responsible for producing the products sold to customers.

Question 5

The goal of a just-in-time production system is to have zero inventory.

Question 6

One of the main objectives of cost allocation is to motivate managers.

Question 7

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

Question 8

Service departments are responsible for providing services directly to customers.

Question 9

Packaging is an example of a service department.

Question 10

If the allocation is for performance evaluation, variable service department costs should be allocated based on the actual rate and actual usage.

Question 11

The company cafeteria is an example of a producing department.

Question 12

One of the main objectives of cost allocation is to value inventory.

Question 13

Accounting is an example of a producing department.

Question 14

Service department costs should be allocated directly to units of product.

Question 15

The goal of a cost accounting system is to measure the cost of developing, producing, selling and distributing particular products or services.

Question 16

The reciprocal method of allocating service department costs fully recognizes services that service departments provide to each other.

Question 17

Direct-labour hours are not a very good measure of the cause of costs in modern, highly automated departments.

Question 18

Actual costs should always be used when allocating service department costs.

Question 19

The direct method of allocating service department costs partially recognizes services that service departments provide to each other.

Question 20

Maintenance is an example of a service department.

Question 21

To allocate central costs, a company could use all of the following cost drivers EXCEPT the

A) revenue of each division.
B) cost of goods sold by each division.
C) total assets of each division.
D) total period costs of each division.

Question 22

Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.
^*in labour hours
The amount of fixed maintenance costs allocated to the Assembling Department should be

A) $36,000.
B) $24,000.
C) $28,000.
D) $22,500.

Question 23

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total advertising expense is $240,000 and it is allocated on the basis of sales, the amount allocated to the New Department should be

A) $40,000.
B) $60,000.
C) $168,000.
D) $200,000.

Question 24

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
^*in labour hours
The amount of variable maintenance costs allocated to the Finishing Department should be

A) $21,000.
B) $24,000.
C) $18,750.
D) $18,000.

Question 25

Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.
^*in labour hours
The amount of variable maintenance costs allocated to the Cutting Department should be

A) $80,000.
B) $96,000.
C) $64,000.
D) $83,333.

Question 26

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total payroll processing costs are $40,000 and they are allocated on the basis of number of employees, the amount allocated to the Old Department should be

A) $28,000.
B) $12,000.
C) $30,000.
D) $33,333.

Question 27

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
^*in labour hours
The amount of variable maintenance costs allocated to the Mixing Department should be

A) $30,000.
B) $36,000.
C) $24,000.
D) $31,250.

Question 28

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total rent expense is $192,000 and it is allocated on the basis of square footage, the amount allocated to the Old Department should be

A) $57,600.
B) $160,000.
C) $144,000.
D) $48,000.

Question 29

Which of the following departments is NOT a service department?

A) Facilities management
B) Personnel
C) Accounting
D) Finishing

Question 30

Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.
^*in labour hours
The amount of fixed maintenance costs allocated to the Cutting Department should be

A) $40,000.
B) $24,000.
C) $36,000.
D) $28,000.

Question 31

Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.
^*in labour hours
The amount of variable maintenance costs allocated to the Assembling Department should be

A) $56,000.
B) $64,000.
C) $50,000.
D) $48,000.

Question 32

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total advertising expense is $120,000 and it is allocated on the basis of sales, the amount allocated to the Old Department should be

A) $90,000.
B) $36,000.
C) $100,000.
D) $ 20,000.

Question 33

A group of individual costs that is allocated to cost objectives using a single cost driver is known as a

A) cost allocation base.
B) cost pool.
C) joint cost.
D) by-product.

Question 34

Which of the following 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 35

The preferred guidelines for allocating service department costs include all of the following EXCEPT

A) identify the direct and indirect costs.
B) evaluate performance using budgets for each service department.
C) establish part or all of the details regarding cost allocation in advance of rendering the service.
D) allocate variable- and fixed-cost pools separately.

Question 36

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
^*in labour hours
The amount of fixed maintenance costs allocated to the Finishing Department should be

A) $12,000.
B) $ 8,000.
C) $ 9,333.
D) $ 7,500.

Question 37

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total rent expense is $80,000 and it is allocated on the basis of square footage, the amount allocated to the New Department should be

A) $13,333.
B) $20,000.
C) $56,000.
D) $60,000.

Question 38

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
^*in labour hours
The amount of fixed maintenance costs allocated to the Mixing Department should be

A) $13,333.
B) $8,000.
C) $12,000.
D) $9,333.

Question 39

Costs are allocated for all the following purposes EXCEPT to

A) predict the economic effects of planning and control decisions.
B) obtain desired motivation.
C) determine the sales volume.
D) compute income and asset valuation.

Question 40

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

If total payroll processing costs are $64,000 and they are allocated on the basis of number of employees, the amount allocated to the New Department should be

A) $44,800.
B) $16,000.
C) $10,667.
D) $19,200.

Question 41

A method for allocating service department costs that ignores other service departments when any given service department's costs are allocated to the revenue-producing departments is called the

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

Question 42

County 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:

If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation would be

A) $121,714.
B) $41,143.
C) $20,571.
D) $60,000.

Question 43

City 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:

If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be

A) $7,714.
B) $6,858.
C) $39,571.
D) $25,000.

Question 44

City 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:

If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing is

A) $4,500.
B) $8,357.
C) $9,000.
D) $11,143.

Question 45

County 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total cost of the Mixing Department after allocation would be

A) $120,429.
B) $122,571.
C) $121,712.
D) $ 60,000.

Question 46

In the step-down method, the last service department in the sequence is the one that renders the

A) most service to all other service departments.
B) most service to the least number of other service departments.
C) least service to the least number of other service departments.
D) least service to the most other service departments.

Question 47

City 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total cost of the Mixing Department after allocation would be

A) $30,107.
B) $30,642.
C) $30,428.
D) $15,000.

Question 48

Which of the following is the least likely alternative to be used to allocate costs?

A) Use a different cost driver for each cost pool.
B) Allocate all costs evenly to all other departments.
C) Allocate some cost pools using cost drivers and leave other cost pools unallocated.
D) Use one cost driver to allocate all department costs.

Question 49

City 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:

If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation would be

A) $30,429.
B) $10,286.
C) $5,143.
D) $15,000.

Question 50

County 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:

If the step-down method is used to allocate costs, and the Personnel Department renders the greatest service, then the total cost of the Finishing Department after allocation would be

A) $100,000.
B) $158,288.
C) $159,571.
D) $157,429.

Question 51

County 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:

If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing is

A) $18,000.
B) $33,428.
C) $36,000.
D) $44,571.

Question 52

The greatest virtue of the direct 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 53

County 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:

If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing is

A) $24,000.
B) $33,429.
C) $27,000.
D) $32,568.

Question 54

County 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:

If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be

A) $30,857.
B) $27,429.
C) $158,286.
D) $100,000.

Question 55

City 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is

A) $5,143.
B) $6,107.
C) $6,000.
D) $9,000.

Question 56

County 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is

A) $20,572.
B) $24,429.
C) $24,000.
D) $36,000.

Question 57

City 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is

A) $6,107.
B) $4,500.
C) $8,143.
D) $6,750.

Question 58

City 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:

If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing is

A) $6,000.
B) $8,357.
C) $6,750.
D) $8,142.

Question 59

City 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:

If the step-down method is used to allocate costs, and the Personnel Department renders the greatest service, then the total cost of the Finishing Department after allocation would be

A) $25,000.
B) $39,572.
C) $39,892.
D) $39,357.

Question 60

County 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:

If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is

A) $24,429.
B) $18,000.
C) $32,571.
D) $27,000.

Question 61

Which of the following is NOT likely to be a cost driver?

A) Production orders
B) Material requisitions
C) Cost accountant's labour hours
D) Product inspections

Question 62

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

If activity-based costing is used, then the product setup cost for the standard model would be

A) $12,857.
B) $17,143.
C) $1,071.
D) $1,866.

Question 63

Bare Company manufactures four products from a joint process. Joint costs for the year amounted to $140,000. The following data are also available:

Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product E would be

A) $40,600.00.
B) $64,444.40.
C) $58,000.00.
D) $35,280.00.

Question 64

Bare Company manufactures four products from a joint process. Joint costs for the year amounted to $140,000. The following data are also available:

Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product A would be

A) $19,600.
B) $37,692.
C) $29,120.
D) $16,640.

Question 65

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product Y would be

A) $172,536.
B) $99,400.
C) $122,500.
D) $24,648.

Question 66

Bare Company manufactures four products from a joint process. Joint costs for the year amounted to $140,000. The following data are also available:

Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product B would be

A) $35,840.00.
B) $48,124.80.
C) $30,800.00.
D) $20,160.00.

Question 67

Which of the following statements regarding by-products is FALSE?

A) A by-product is not individually identifiable until the split-off point.
B) A by-product is the same as a joint product.
C) By-products have relatively insignificant total sales value.
D) Only separable costs are allocated to by-products.

Question 68

Activity-based costing is also known as

A) transaction-based costing.
B) motivation-based costing.
C) objective-based costing.
D) variable-based costing.

Question 69

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

If activity-based costing is used, then the total amount of overhead allocated to the standard model would be

A) $74,330.
B) $120,000.
C) $40,000.
D) $45,670.

Question 70

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

If activity-based costing is used, then the total amount of overhead allocated to the deluxe model would be

A) $45,670.
B) $74,330.
C) $120,000.
D) $ 80,000.

Question 71

Another term for cost application is

A) cost pool.
B) cost driver.
C) cost objective.
D) cost attribution.

Question 72

Which of the following is NOT likely to be an activity in an activity-based costing system?

A) Materials handling
B) Inspection
C) Accounting
D) Assembly

Question 73

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product W would be

A) $89,600.
B) $120,312.
C) $77,000.
D) $50,400.

Question 74

Bare Company manufactures four products from a joint process. Joint costs for the year amounted to $140,000. The following data are also available:

Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product R would be

A) $49,000.00.
B) $39,760.00.
C) $69,014.40.
D) $22,720.00.

Question 75

One conventional way of allocating joint costs to products is the

A) relative sales value method.
B) direct method.
C) indirect method.
D) abc method.

Question 76

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product W would be

A) $120,312.
B) $62,858.
C) $122,500.
D) $77,000.

Question 77

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product Z would be

A) $101,500.
B) $89,600.
C) $161,111.
D) $82,858.

Question 78

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

If activity-based costing is used, then the total cost of the components used in the deluxe model would be

A) $3,455.
B) $27,636.
C) $48,364.
D) $76,000.

Question 79

Each of the following is a step in the general approach to allocating costs to final products or services EXCEPT

A) select one or more cost drivers in each production department.
B) allocate production-related costs to the operating line.
C) apply the total costs allocated to the production department to the output of the department using cost drivers.
D) identify production costs as either direct or indirect.

Question 80

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product X would be

A) $94,230.
B) $72,800.
C) $122,500.
D) $49,000.