Deck 12: Cost Allocation

Question 1

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating variable costs of the Computer Department to a user department,which of the following formulas is used?

A) actual computer hours used × (total budgeted variable costs of Computer Department / total budgeted computer hours of Computer Department)
B) budgeted computer hours to be used × (total budgeted variable costs of Computer Department/ total budgeted computer hours of Computer Department)
C) actual computer hours used × (total actual variable costs of Computer Department/ total actual computer hours of Computer Department)
D) budgeted computer hours to be used × (total actual variable costs of Computer Department/ total budgeted computer hours of Computer Department)

Answer 1

A

Question 2

Which of the following departments is NOT a service department?

A) laundry department in a hospital
B) maintenance department in a hospital
C) housekeeping department in a hospital
D) surgery floor in a hospital

Answer 2

D

Question 3

Some service department activities support customers rather than the production process.These costs are traced directly to ________ instead of ________.

A) products; producing departments
B) producing departments; service departments
C) customers; producing departments
D) service departments; producing departments

Answer 3

C

Question 4

When allocating service department costs to producing departments,which of the following guidelines is NOT followed?

A) Allocate variable- and fixed-cost pools separately.
B) Establish the cost-allocation procedure before rendering the service.
C) Evaluate performance using flexible budgets for each service department.
D) Establish the cost-allocation procedure after rendering the service.

Question 5

Why do companies develop cost allocation methods to assign service department costs to producing departments?

A) to identify the total cost of production
B) to accurately determine the cost of a product
C) to develop transfer prices for products
D) A and B

Question 6

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment.The cost object is the assembly department in a factory.

Question 7

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating fixed costs of the Computer Department to a user department such as Department A,which of the following formulas is used?

A) budgeted fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
B) budgeted fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)
C) actual fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
D) actual fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)

Question 8

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

Question 9

Service department costs can be assigned to ________.

A) customers only
B) producing departments only
C) customers and producing departments
D) none of the above

Question 10

For management purposes,managers trace and allocate the costs from value-chain functions to ________.

A) products only
B) customers only
C) products and customers
D) none of the above

Question 11

Service departments in organizations exist to support ________.

A) other service departments and customers only
B) producing departments and suppliers only
C) other service departments, producing departments and customers
D) producing departments and customers only

Question 12

For costs that accountants cannot directly trace to products or services,accountants use ________ or ________.

A) ABC methods; payback method
B) cost-budgeting methods; ignore remaining costs
C) sensitivity analysis; financial planning models
D) cost-allocation methods; leave costs unallocated

Question 13

Managers allocate the salaries of human resource personnel to a producing department.The salaries are considered to be a(n)________ for the producing department and a(n)________ for the human resource department.

A) direct cost; indirect cost
B) indirect cost; direct cost
C) indirect cost; indirect cost
D) traceable cost; common cost

Question 14

Examples of service departments in a hospital include the housekeeping and laundry departments.

Question 15

The logical cost driver for building rent cost of $10,000 is square feet.The cost object is the assembly department in a factory.

Question 16

Managers trace ________ to service departments.Managers allocate ________ to service departments.

A) producing department costs; service department costs
B) producing department costs; producing department costs
C) direct costs; indirect costs
D) direct costs; producing department costs

Question 17

For external financial reporting,________ costs are assigned to products or services.

A) some production
B) all production
C) all value chain function
D) all production and some value chain function

Question 18

Companies must assign all value chain costs to products for internal financial reports.

Question 19

Why do managers assign the direct costs of service departments to customers instead of the producing department?

A) for ease of calculation
B) to reduce bookkeeping costs
C) to prevent cost distortions due to the use of a cost allocation base by the producing department that has little relationship to the cause of customer service costs
D) because customers are the only cost objects with direct costs

Question 20

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

Question 21

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

Question 22

In practice,companies often inappropriately allocate fixed cost pools for service departments to producing departments on the basis of ________ instead of ________.

A) budgeted costs; actual costs
B) actual costs; budgeted costs
C) capacity used; capacity available
D) capacity available; capacity used

Question 23

When allocating fixed costs from service departments to user departments,a predetermined lump-sum allocation based on the long-range capacity available to the user should be used.

Question 24

Budgeted cost rates are used for allocating variable costs of service departments to user departments because ________.

A) it provides service departments a greater incentive to be efficient
B) it protects user departments from inefficiencies in service departments
C) it protects managers in service departments from inflation
D) A and B

Question 25

A reason for using capacity available instead of capacity used when allocating budgeted fixed costs from service departments to user departments is ________.

A) actual usage by user departments does not affect short run allocations to other user departments
B) actual usage by user departments does not affect long run allocations to other user departments
C) that the allocation methods to assign service department costs to producing departments are inaccurate
D) that the allocation methods to assign service department costs to producing departments are not available

Question 26

The preferred guidelines for allocating service department costs to user departments include ________.

A) combining variable-cost and fixed-cost pools
B) establishing details about cost allocation after providing services
C) using actual costs for allocation of fixed costs and variable costs
D) allocating variable-cost and fixed-cost pools separately

Question 27

Variable costs of service departments are allocated to user departments using ________ cost rates instead of ________ cost rates.

A) actual; budgeted
B) budgeted; actual
C) long-range; short-range
D) short-range; long-range

Question 28

Allocating fixed costs based on long-range plans may inadvertently result in a tendency of mangers to ________.

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

Question 29

Which of the following formulas should be used to allocate variable costs from service departments to user departments?

A) budgeted unit rate × total budgeted units planned to be used
B) actual unit rate × total budgeted units planned to be used
C) budgeted unit rate × actual units used
D) actual unit rate × actual units used

Question 30

Stevens Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $40,000.Budgeted variable costs for the maintenance department are $4.00 per labor hour.Other relevant data follow:
$\begin{array}{ll}&\text { Assembly }&\text { Finishing }\\\text { Capacity available }&\text { 18,000 labor hours } & 12,000 \text { labor hour: } \\\text { Capacity used }&\text { 15,000 labor hours } & 9,000 \text { labor hours }\end{array}$
Actual maintenance department costs:
$\begin{array}{ll}\text { Fixed } & \$ 36,000 \\\text { Variable } & \$ 100,000\end{array}$
The amount of fixed maintenance department costs allocated to the Assembly Department should be ________.

A) $16,000
B) $22,500
C) $24,000
D) $25,000

Question 31

The allocation of fixed costs in service departments to user departments is based on ________.

A) actual capacity used in last period
B) budgeted capacity available to user
C) actual usage by user department
D) actual usage by service department

Question 32

Robertson Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $40,000.Budgeted variable costs for the maintenance department are $4.00 per labor hour.Other relevant data follow:
$\begin{array}{ll}&\text { Assembly }&\text { Finishing }\\\text { Capacity available }&\text { 18,000 labor hours } & 12,000 \text { labor hour: } \\\text { Capacity used }&\text { 15,000 labor hours } & 9,000 \text { labor hours }\end{array}$
Actual maintenance department costs:
$\begin{array}{ll}\text { Fixed } & \$ 36,000 \\\text { Variable } & \$ 100,000\end{array}$
The amount of fixed maintenance department costs allocated to the Finishing Department should be ________.

A) $11,250
B) $14,400
C) $15,000
D) $16,000

Question 33

The use of actual cost rates for allocating variable costs of service departments protects the user departments from inefficiencies in service departments.

Question 34

When allocating fixed costs from service departments to production departments,managers should use ________ instead of ________.

A) capacity used; capacity available
B) capacity available; budgeted capacity
C) capacity used; budgeted capacity
D) capacity available; capacity used

Question 35

The Technical Services Department of Georgia State University leased a photocopy machine for $1,500 per month plus $0.04 per copy.Additional budgeted variable operating costs were $0.02 per copy.The Technical Services Department estimated the machine would produce 30,000 copies per month.The Accounting Department estimated it would make 6,000 copies per month but it actually made 5,000 copies.Assume fixed and variable cost pools are allocated separately.What is the amount of variable cost allocated to the Accounting Department for the month?

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

Question 36

When allocating service department costs to user departments,fixed costs should be allocated using budgeted cost rates times the actual cost driver level.

Question 37

Todd Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $30,000.Budgeted variable costs for the maintenance department are $5.00 per labor hour.Other relevant data follow:
$$\begin{array} { l l l } & \text { Assembly } & \text { Pinishing } \\\text { Capacity available } & 20,000 \text { labor hours } & 15,000 \text { labor hours } \\\text { Capacity used } & 15,000 \text { labor hours } & 9,000 \text { labor hours }\end{array}$$
Actual maintenance department costs:
$\begin{array}{ll}\text { Fixed } & \$ 36,000 \\\text { Variable } & \$ 100,000\end{array}$
The amount of variable maintenance department costs allocated to the Finishing Department should be ________.

A) $37,500
B) $42,000
C) $45,000
D) $75,000

Question 38

Robert Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $30,000.Budgeted variable costs for the maintenance department are $5.00 per labor hour.Actual maintenance department costs are $36,000 fixed and $100,000 variable.Other relevant data follow:
$$\begin{array} { l l l } & \text { Assembly } & \text { Pinishing } \\\text { Capacity available } & 20,000 \text { labor hours } & 15,000 \text { labor hours } \\\text { Capacity used }& 15,000 \text { labor hours } & 9,000 \text { labor hours }\end{array}$$
The amount of variable maintenance department costs allocated to the Assembly Department should be ________.

A) $48,000
B) $62,500
C) $75,000
D) $100,000

Question 39

The Technical Services Department of Wichita State University leased a photocopy machine for $2,000 per month plus $0.04 per copy.Additional budgeted variable operating costs were $0.02 per copy.The Technical Services Department estimated the machine would produce 30,000 copies per month.The Accounting Department estimated is would make 6,000 copies per month but it actually made 4,000 copies.Assume fixed and variable cost pools are allocated separately.What is the amount of fixed cost allocated to the Accounting Department for the month?

A) $200
B) $267
C) $360
D) $400

Question 40

Variable and fixed costs from service departments should be allocated separately to user departments.

Question 41

Marvelous Company has two service departments,Maintenance and Human Resources.Marvelous Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
Assume the step-down method is used to allocate service department costs and the Maintenance Department is allocated first.Then the amount of cost allocated from the Human Resources Department to the Maintenance Department would be ________.

A) $0
B) $3,539
C) $4,200
D) $4,998

Question 42

Landslide Company has two service departments,Maintenance and Human Resources.Landslide Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\\&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\\\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$
If the step-down method is used to allocate service department costs,and the Maintenance Department is allocated first,the amount of costs allocated from the Maintenance Department to the Mixing Department is ________.

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

Question 43

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

A) $48,000
B) $102,000
C) $175,000
D) $277,000

Question 44

The three methods for allocating service department costs to other departments are ________.

A) step-down, indirect and reciprocal allocation
B) direct, step-up and reciprocal allocation
C) step-down, direct and reciprocal allocation
D) step-up, indirect and simultaneous equations

Question 45

When using the step-down method of allocating service department costs,service departments provide support activities to ________.

A) producing departments only
B) producing departments and other service departments
C) service departments only
D) producing departments and corporate central offices only

Question 46

Gonzalez Company has two service departments,Maintenance and Human Resources.Gonzalez Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\\&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\\\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$
Assume the step-down method is used to allocate service department costs,and the Maintenance Department is allocated first.The amount of cost allocated from the Maintenance Department to the Finishing Department would be ________.

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

Question 47

The direct method of allocating service department costs to producing departments ignores ________.

A) services provided by service departments to central corporate offices
B) services provided by service departments to user departments
C) services provided by service departments to other service departments
D) services provided by service departments to producing departments

Question 48

Garcia Company has two service departments,Maintenance and Human Resources.Garcia Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\\&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\\\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 400 & 1,600 & 1,200 \\\text { Number of employees } & 8 & 12 & 24 & 32\end{array}$
Assume the step-down method is used to allocate service department costs.Which department should be allocated first?

A) Maintenance
B) Human Resources
C) Mixing
D) Finishing

Question 49

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

A) $36,000
B) $105,000
C) $108,000
D) $213,000

Question 50

Salinas Company has two service departments,Maintenance and Human Resources.Salinas Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\\\text { Maintenance } & \text { Resources }& \text { Mixing } & \text { Finishing }\\\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage } & 800 & 100 & 1,300 & 1,100 \\\text { Number of employees } & 20 & 12 & 28 & 32\end{array}$
Assume the step-down method is used to allocate service department costs.Which department should be allocated first?

A) Maintenance
B) Human Resources
C) Mixing
D) Finishing

Question 51

Sanchez Company has two service departments,Maintenance and Human Resources.Sanchez Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }&\$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \\\text { Square footage }&800 & 400 & 1,600 & 1,200 \\\text { Number of employees }&8 & 12 & 24 & 32\end{array}$
Assume the step-down method is used to allocate service department costs and the Maintenance Department is allocated first.What are the total costs of the Mixing Department after the allocation of service department costs?

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

Question 52

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

A) direct
B) indirect
C) step-down
D) cost driver

Question 53

Train Company has two service departments,Maintenance and Human Resources.Train Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
If the direct method is used to allocate service department costs,then the total cost of the Human Resources Department after the Maintenance Department cost allocation would be ________.

A) $33,600
B) $38,640
C) $39,900
D) $50,400

Question 54

Wenzel Company has two service departments,Maintenance and Human Resources.Wenzel Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
Assume the step-down method is used to allocate service department costs and the Maintenance Department is allocated first.What amount of costs would be allocated from the Maintenance Department to the Human Resources Department?

A) $0
B) $5,040
C) $6,300
D) $16,800

Question 55

Which of the following methods of allocating service department costs to user departments is superior?

A) The step down method is superior because it is easy to understand.
B) The direct method is superior because it recognizes the support provided between service departments.
C) The direct and step down methods allocate the same amount of total costs so both methods are comparable.
D) The step down method is superior because it recognizes the support provided between service departments.

Question 56

Christina Company has two service departments,Maintenance and Human Resources.Christina Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
Assume the step-down method is used to allocate service department costs and the Human Resources Department is allocated first.Then the cost allocated from the Human Resources Department to the Maintenance Department is ________.

A) $0
B) $3,539
C) $4,200
D) $13,440

Question 57

Bender Company has two service departments,Maintenance and Human Resources.Bender Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
If the direct method is used to allocate service department costs,then the total cost of the Maintenance Department after the Human Resources Department cost allocation would be ________.

A) $33,600
B) $50,400
C) $54,600
D) $70,000

Question 58

Johnson Company's power plant provides electricity to two producing departments.The annual budget for the power plant shows the following:

Actual annual costs incurred by the power plant were:

Additional annual data follows:

Required:

A) Compute the amount of fixed costs allocated to each producing department.
B) Compute the amount of variable costs allocated to each producing department.

Question 59

Which of the following statements is FALSE?

A) Under the step-down method, after allocating Service Department 1 costs to Service Department 2, we do not allocate any costs back to Service Department 1.
B) Under the step-down method, we ignore services provided by a service department to itself.
C) The total amount of service department costs allocated to user departments is the same for the step-down and direct methods.
D) Under the step-down method, the first service department to allocate costs to the user departments is the one that provides the most service to the producing departments.

Question 60

In the step-down method,the first service department used in the sequence to allocate service department costs is the department that renders the ________.

A) greatest service as measured by physical capacity
B) greatest service as measured by total employees
C) greatest service as measured by costs to the other service departments
D) greatest service as measured by costs to the producing departments

Question 61

Timothy Company manufactures two models of pens,a standard model and a deluxe model.Three activities have been identified in the production of the pens.The following information is available:
$\begin{array} { l }\text { Direct }&\text { Number of }&\text { Number of }&\text { Number of }\\\text { Product }&\text { Setups }& \text { Components } & \text { Labor Hours }\\\text { Standard } & 22 & 8 & 375 \\\text { Deluxe } & 28 & 12 & 225\end{array}$

$$\begin{array} { l l c } \text { Cost pool } & \text { Total costs } & \text { Cost Driver } \\\hline\text { Setup Costs } & \$ 15,000 & \text { Number of setups} \\\text { Assembly Costs }&\$36,000& \text { Number of components} \\\text { Labor Costs }&\$9,000& \text { Number of direct labor hours} \\\end{array}$$
If activity-based costing is used,the setup cost assigned to the standard model is ________.

A) $33
B) $8,400
C) $13,200
D) $44,000

Question 62

The traditional approach to cost allocation focuses on accumulating and reporting costs by ________.The activity-based approach to cost allocation focuses on accumulating and reporting costs by ________.

A) cost behavior; resources used
B) departments; activities
C) fixed costs; variable costs
D) product; customer

Question 63

Under the traditional approach to cost allocation,which of the following steps is NOT used in allocating costs to products?

A) Divide the costs in each producing department, including allocated costs, into direct costs and indirect costs.
B) Trace the direct costs to the appropriate products.
C) Select cost pools and cost-allocation bases in each producing department and assign all indirect costs to the appropriate cost pool.
D) Collect relevant data concerning costs and the physical flow of cost-allocation base units among resources and activities.

Question 64

The direct method sequence of allocations begins with the service department that renders the greatest service to the greatest number of other service departments.

Question 65

Lindsey Company has two service departments,Maintenance and Human Resources.Lindsey Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs } & \$ 50,400 & \$ 35,000 & \$ 42,000 & \$ 70,000 \\\text { Square footage } & 1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees } & 16 & 24 & 40 & 60\end{array}$
If the direct method is used to allocate service department costs,then the cost allocated from the Human Resources Department to the Finishing Department is ________.

A) $14,000
B) $16,800
C) $21,000
D) $33,600

Question 66

When determining product costs,the last step in the traditional approach to cost allocation is ________.

A) divide costs in each producing department into direct costs and indirect costs
B) trace direct costs to products
C) select cost pools and cost allocation bases in each production department and assign indirect department costs to the appropriate cost pool
D) allocate the costs in each cost pool to the products in proportion to their usage of the related cost-allocation base

Question 67

Salerno Company has two service departments,Maintenance and Cafeteria,as well as two production departments,Mixing and Bottling.Maintenance Department costs are allocated based on square footage and Cafeteria Department costs are allocated based on number of employees.The following data was available:

Assume the direct method is used to allocate service department costs to producing departments.
Required:

A) Determine the total costs of the Mixing Department after allocating the service departments' costs.
B) Determine the total costs of the Bottling Department after allocating the service departments' costs.

Question 68

Under the ABC approach to cost allocation,which of the following steps is NOT used in allocating costs to products?

A) Determine the key components of the system and the relationship among them.
B) Calculate and interpret the new ABC information.
C) Collect relevant data concerning costs and the physical flow of cost-allocation base units among resources and activities.
D) Select cost pools and cost-allocation bases in each producing department and assign all indirect costs to the appropriate cost pool.

Question 69

Matthew Company manufactures two models of pens,a standard model and a deluxe model.Three activities have been identified in the production of the pens.The following information is available:
$\begin{array} { l }\text { Direct }&\text { Number of }&\text { Number of }&\text { Number of }\\\text { Product }&\text { Setups }& \text { Components } & \text { Labor Hours }\\\text { Standard } & 22 & 8 & 375 \\\text { Deluxe } & 28 & 12 & 225\end{array}$

$$\begin{array} { l l c } \text { Cost pool } & \text { Total costs } & \text { Cost Driver } \\\hline\text { Setup Costs } & \$ 15,000 & \text { Number of setups} \\\text { Assembly Costs }&\$36,000& \text { Number of components} \\\text { Labor Costs }&\$9,000& \text { Number of direct labor hours} \\\end{array}$$
If activity-based costing is used,the total costs assigned to the standard model are ________.

A) $22,500
B) $26,625
C) $33,375
D) $37,500

Question 70

The phrase "cost application" refers to the allocation of the total departmental costs to ________.

A) service departments
B) service departments and producing departments
C) revenue-producing departments
D) revenue-producing products

Question 71

The direct method of allocating service department costs ignores other service departments when allocating service departments' costs to user departments.

Question 72

The direct method of cost allocation is generally preferred because it recognizes the effect of support provided by service departments to other service departments.

Question 73

Evermore Company has two service departments,Maintenance and Cafeteria,as well as two production departments,Mixing and Finishing.Maintenance Department costs are allocated based on direct labor hours and Cafeteria Department costs are allocated based on number of employees.The following data are available:

Assume the step-down method of allocating service departments' costs is used.Assume the Maintenance Department is allocated first.
Required:

A) Determine the total costs of the Mixing Department after allocating the service departments' costs.
B) Determine the total costs of the Finishing Department after allocating the service departments' costs.

Question 74

Under the traditional approach to cost allocation,the costs in each cost pool are allocated to a product in proportion to the product's usage of the ________.

A) available capacity
B) budgeted capacity
C) cost-allocation base
D) cost pool

Question 75

Two popular methods for allocating service department costs to user departments are the direct method and the step-up method.

Question 76

Smith Company has developed the following information about two products:
$\begin{array}{lll}& \text { Cost Per Unit } & \text { Cost Per Unit } \\\text { Approach } & \text { Product 1 } & \text { Product 2 } \\\text { Traditional } & \$ 5,400 & \$ 2,500 \\\mathrm{ABC} & \$ 6,000 & \$ 2,400\end{array}$
If managers believe the ABC approach is more accurate to cost products than the traditional approach,then ________.

A) the traditional approach underestimates the profitability of Product 1 and overestimates the profitability of Product 2
B) the traditional approach overestimates the profitability of Product 1 and underestimates the profitability of Product 2
C) the ABC approach underestimates the profitability of Product 1 and overestimates the profitability of Product 2
D) the ABC approach overestimates the profitability of Product 1 and underestimates the profitability of Product 2

Question 77

Adam Company has two service departments,Maintenance and Human Resources.Adam Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs }& \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage }&1,600 & 800 & 3,200 & 2,400 \\\text { Number of employees }&16 & 24 & 48 & 64\end{array}$
Assume the step-down method is used to allocate service department costs and the Human Resources Department is allocated first.Then the amount of cost allocated from the Maintenance Department to the Human Resources Department is ________.

A) $0
B) $5,040
C) $6,300
D) $6,825

Question 78

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 79

Purple Company has three service departments,X,Y and Z and two production departments,P1 and P2.Costs in Departments X and Y are allocated based on square feet and costs in Department Z are allocated based on direct labor hours.
The following data are available:

Service Department:

Producing Department:

Assume the direct method of allocating service department costs is used.
Required:

A) What is the total cost of Producing Department P1 after allocating the service departments' costs?
B) What is the total cost of Producing Department P2 after allocating the service departments' costs?

Question 80

Stevie Company has two service departments,Maintenance and Human Resources.Stevie Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\\&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \\\text { Direct costs } & \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \\\text { Square footage } & 1,600 & 800 & 3,000 & 2,000 \\\text { Number of employees } & 16 & 24 & 40 & 60\end{array}$
If the direct method is used to allocate service department costs,then the cost allocated from the Maintenance Department to the Mixing Department is ________.

A) $20,160
B) $25,200
C) $30,240
D) $50,400