Deck 13: Allocating Costs to Responsibility Centers

Question 1

Which of the following is the process by which the costs of operating the human resources,accounting,computer support,and maintenance departments are allocated to other departments?

A)direct department cost allocation.
B)producing department cost allocation.
C)service department cost allocation.
D)common department cost allocation.

Answer 1

C

Question 2

Which of the following terms describes a cost that firms can identify specifically with,or trace directly to,a particular product,department,or process?

A)direct cost.
B)process cost.
C)marginal cost.
D)variable cost.

Answer 2

A

Question 3

What is the proper sequence of steps in allocating costs to production departments?

A)Assign direct costs to departments,allocate indirect costs to departments,and allocate service department costs to production departments.
B)Assign indirect costs to departments,allocate direct costs to departments,and allocate service department costs to production departments.
C)Assign service department costs to production departments,allocate direct costs to departments,and allocate indirect costs to production departments.
D)Assign indirect costs to departments,allocate service department costs to departments,and allocate direct costs to production departments.

Answer 3

A

Question 4

Why do companies allocate common costs to departments and products?

A)pricing and bidding.
B)contract cost reimbursement.
C)motivation.
D)All of the answers are correct.

Question 5

Why do companies allocate common costs to departments and products?

A)to develop product cost information for purposes of pricing and bidding.
B)contract cost reimbursement.
C)motivation.
D)All of the answers are correct.

Question 6

The step method allocates costs of service departments to

A)other service departments.
B)producing departments.
C)joint products.
D)other service departments and producing departments.

Question 7

When are cost allocation concepts appropriate?

A)only as management deems appropriate.
B)in manufacturing,nonmanufacturing,and service organizations.
C)in allocating costs to production departments,but not from one service department to another.
D)None of the answers is correct.

Question 8

Charley's Products allocates telephone expenses based on a variable rate of $1 per phone call.It allocates the fixed monthly charge equally over its budgeted usage.Able Division expected to make 300 telephone calls,but actually made 350.Baker Division expected to make 300 telephone calls,but actually made 250.Actual fixed costs for the month totaled $3,000.What are the amounts allocated to the two divisions using a dual rate of allocation?

A)Able Division = $2,259,Baker Division = $1,291
B)Able Division = $2,209,Baker Division = $1,391
C)Able Division = $1,850,Baker Division = $1,750
D)Able Division = $1,800,Baker Division = $1,800

Question 9

Which of the following is a cost that is not usually allocated to a department?

A)Direct labor used.
B)Manager's salary for the department.
C)Property taxes for the factory building.
D)All of the answers are correct.

Question 10

What is the first step in allocating service department costs to production departments?

A)Assign overhead costs that are directly attributable to a service or production department.
B)Allocate other overhead costs based on appropriate cost drivers.
C)Allocate service department costs to production departments.
D)None of the answers is correct.

Question 11

How can a department manager's salary be characterized?

A)direct cost of the department,but indirect to the units the department produces.
B)process cost of the department,but indirect to the units the department produces.
C)indirect cost of the department,but direct to the units the department produces.
D)variable cost of the department,but direct to the units the department produces.

Question 12

What is the second step in allocating service department costs to production departments?

A)Assign overhead costs that are directly attributable to a service or production department.
B)Allocate other overhead costs based on appropriate cost drivers.
C)Allocate service department costs to production departments.
D)None of the answers is correct.

Question 13

How do common costs arise?

A)From the joint use of a facility or a service by several products,departments,or processes.
B)From the direct use of a facility or a service by several products,departments,or processes.
C)From the variable use of a facility or a service by several products,departments,or processes.
D)From the marginal use of a facility or a service by several products,departments,or processes.

Question 14

Why are the costs of operating service departments allocated to other departments?

A)Many departments consume the services provided by service departments and should be assigned a share of the costs associated with the services consumed.
B)Allocating service costs to other departments for services provided gives department managers incentives to control the use of support services.
C)External reporting regulations (for tax and financial reporting)require allocating manufacturing overhead to the units produced.
D)All of the answers are correct.

Question 15

Which of these is a cost that results from the joint use of a facility or a service by several products,departments,or processes?

A)direct cost.
B)indirect cost.
C)marginal cost.
D)variable cost.

Question 16

Costs of operating the human resources,accounting,computer support,and maintenance departments are allocated to other departments.All are examples of which of the following?

A)direct departments.
B)producing departments.
C)service departments.
D)common departments.

Question 17

Companies do not allocate common costs to departments and products for which of the following reasons:

A)to develop product cost information for purposes of pricing and bidding.
B)contract cost reimbursement.
C)motivation.
D)dumping excess inventories on the market.

Question 18

Which of the following is not a reason that costs of operating service departments are allocated to other departments?

A)Many departments consume the services provided by service departments and should be assigned a share of the costs associated with the services consumed.
B)Allocating service costs to other departments for services provided gives department managers incentives to control the use of support services.
C)External reporting regulations (for tax and financial reporting)require allocating manufacturing overhead to the units produced.
D)Many departments consume the services provided by service departments and should be charged an arbitrary share of the costs because the costs must be allocated to someone.

Question 19

What costs result from the joint use of a facility or a service by several products,departments,or process?

A)Opportunity
B)Direct
C)Common (or indirect)costs
D)All of the answers are correct.

Question 20

Pricing and bidding,contract cost reimbursement,and motivation are reasons for

A)allocating common costs to departments and products.
B)allocating common costs to service departments,only.
C)not allocating common costs to departments and products.
D)not allocating common costs to production departments.

Question 21

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of Administration costs is allocated to Department J (rounded to the nearest $)?

A)$ 97,561
B)$320,000
C)$400,000
D)$480,000

Question 22

Pine Tar Forest Products has two production departments (Planting and Harvesting)and two service departments (Cafeteria and Repairs).The service department costs must be allocated to production departments.Management has decided to allocate the cost of the cafeteria to other departments based upon the average number of employees and the cost of the Repairs Department based upon the number of machine hours used.

Regardless of the allocation method used,Pine Tar Forest Products always starts the allocation process with the Cafeteria Department.
If Pine Tar Forest Products distributes costs directly (direct method)from service departments to productions departments,what additional overhead costs should be allocated from the service departments to the Planting Department?

A)$56,800
B)$54,400
C)$35,940
D)$67,200

Question 23

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of Shipping costs is allocated to Department J (rounded to the nearest $)?

A)$ 63,636
B)$318,182
C)$381,818
D)$450,000

Question 24

To identify costs that relate to a specific product,what allocation base should be chosen?

A)One that does not have a cause and effect relationship.
B)One that has a causal relationship.
C)One that considers variable costs but not fixed costs.
D)One that considers direct materials and direct labor but not factory overhead.

Question 25

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Administration costs is allocated to Department J (rounded to the nearest $)?

A)$ 97,561
B)$216,216
C)$273,115
D)$409,673

Question 26

The service department cost allocation methodology that begins with the service department that receives the smallest dollar amount of service from the other service departments has its costs allocated to the other service and production departments,then distributes the total costs of the service department receiving the next smallest amount of service from other service departments,and so on is called the

A)wave method.
B)activity-based method.
C)step method.
D)pass along method.

Question 27

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of personnel costs is allocated to Department J (rounded to the nearest $)?

A)$120,000
B)$240,000
C)$300,000
D)$360,000

Question 28

What is the third,or final,step in allocating service department costs to production departments?

A)Assign overhead costs that are directly attributable to a service or production department.
B)Allocate other overhead costs based on appropriate cost drivers.
C)Allocate service department costs to production departments.
D)None of the answers is correct.

Question 29

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of Administration costs is allocated to Department D (rounded to the nearest $)?

A)$ 97,561
B)$320,000
C)$400,000
D)$444,444

Question 30

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Shipping costs is allocated to Department J (rounded to the nearest $)?

A)$304,348
B)$500,000
C)$524,570
D)$629,484

Question 31

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Personnel costs is allocated to Department D (rounded to the nearest $)?

A)$ 73,171
B)$100,000
C)$105,263
D)$240,000

Question 32

What is the final step for allocating service department costs to production departments?

A)Assign overhead costs that are directly attributable to a service or production department.
B)Allocate other overhead costs (that are not directly attributable to a service or production department)based on some cost driver.
C)Allocate service department costs to production departments
D)Service department costs cannot be allocated to production departments.

Question 33

Columbia Hospital for Women charges for labor and delivery room overhead based on hours of use.The following data represents the annual budget for the labor and delivery room:

The total hours of labor and delivery room care expected for the year is 300,000 hours.If a patient spends 4 hours in the labor and delivery room,what is the total overhead costs that would be charged?

A)$80.00
B)$40.00
C)$20.00
D)$ 4.00

Question 34

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of personnel costs is allocated to Department D (rounded to the nearest $)?

A)$ 73,171
B)$240,000
C)$300,000
D)$333,333

Question 35

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Administration costs is allocated to Department D (rounded to the nearest $)?

A)$ 97,561
B)$216,216
C)$273,115
D)$409,673

Question 36

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Personnel costs is allocated to Department J (rounded to the nearest $)?

A)$ 73,171
B)$105,263
C)$157,895
D)$240,000

Question 37

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the direct method,what amount of Shipping costs is allocated to Department D (rounded to the nearest $)?

A)$ 63,636
B)$318,182
C)$381,818
D)$450,000

Question 38

Which of the following statements best describes cost allocation?

A)A company can maximize or minimize total company income by selecting different bases on which to allocate indirect costs.
B)A company should select an allocation base to raise or lower reported income on given products.
C)A company's total income will remain unchanged no matter how indirect costs are allocated.
D)A company,as a general rule,should allocate indirect costs randomly or based on an "ability-to-bear" criterion.

Question 39

Stephanie Company
Stephanie Company has two production departments: D and J.Stephanie also has 3 service departments: Personnel,Administration,and Shipping.Shipping costs are allocated on the basis of number of packages,while Personnel and Administration costs are allocated using number of employees.Assume that the ranking of the benefits provided is in the order listed below.

Refer to Stephanie Company.Using the step method,what amount of Shipping costs is allocated to Department D (rounded to the nearest $)?

A)$304,348
B)$500,000
C)$524,570
D)$629,484

Question 40

Which overhead allocation method allocates service department costs with consideration of services rendered to other service departments?

A)step method.
B)direct method.
C)net realizable value method.
D)physical measures method.

Question 41

The costing process that (1)measures each service department's resource spending by unit,batch,product,customer,or facility,then (2)identifies and measures the activities demanded by other departments that require support-service spending,then (3)identifies appropriate cost-driver bases and calculates cost-driver rates,and finally allocates service department costs based on other departments' usage of cost-driver bases,is called the

A)usage method.
B)activity-based method.
C)step method.
D)cost driver method.

Question 42

Which of the following is a reason for using activity-based costing to allocate service department costs?

A)It results in identifying more accurate cost drivers.
B)It is required by generally accepted accounting principles.
C)It is required by the tax authorities.
D)All of the answers are correct.

Question 43

While the results of allocating joint-process costs in different ways can be very important to managers for planning,performance evaluation,and decision making,

A)there is no precise way of tracing joint-process costs to joint products.
B)activity-based costing provides a precise way of tracing joint-process costs to joint products.
C)traditional costing provides a precise way of tracing joint-process costs to joint products.
D)standard costing provides a precise way of tracing joint-process costs to joint products.

Question 44

Net realizable value and physical measures are two methods for allocating which of the following costs?

A)direct costs.
B)opportunity costs.
C)joint-process costs.
D)sunk costs.

Question 45

Why is activity-based costing used to allocate service department costs?

A)To improve allocations of production department costs to production departments.
B)To improve allocations of production department costs to service departments.
C)To improve allocations of service department costs to production departments.
D)None of the answers is correct.

Question 46

Why are joint-process costs allocated?

A)Used for performance evaluations.
B)Used for reporting purposes.
C)Used for establishing regulated rates.
D)All of the answers are correct.

Question 47

The products that result from processing a common input in the forest products,oil and gas,chemicals and mining industries are called

A)natural products.
B)common products.
C)joint products.
D)environmentally-sound products.

Question 48

Why are joint-process costs are allocated?

A)Due to the need to assign joint-process costs to two or more products manufactured from a common input.
B)Due to the need to assign joint-process costs to two or more products manufactured from different inputs.
C)Due to the need to assign joint-process costs to two or more products manufactured from a common output.
D)Due to the need to assign joint-process costs to two or more products manufactured from different outputs.

Question 49

Joint-process cost allocations arise from the need to assign joint-process costs to

A)a single product manufactured from a common input.
B)a single product manufactured from two or more common inputs.
C)two or more products manufactured from a common input.
D)two or more products manufactured from two or more common inputs.

Question 50

Which of the following is a reason for using activity-based costing to allocate service department costs?

A)It can lead to improved allocation of service department costs to production departments.
B)It is required by generally accepted accounting principles.
C)It is required by the tax authorities.
D)All of the answers are correct.

Question 51

Applying the techniques of activity-based costing typically results in identifying which of the following?

A)less accurate cost-allocation bases (cost drivers).
B)as accurate cost-allocation bases (cost drivers).
C)more accurate cost-allocation bases (cost drivers).
D)None of the answers is correct.

Question 52

The stage of processing when two or more products are separated from the processing of a common input in the forest products,oil and gas,chemicals and mining industries is called a

A)point of no return.
B)separation point.
C)splitoff point.
D)breakout point.

Question 53

Why is activity-based costing used to allocate service department costs?

A)There are fewer cost-allocation bases.
B)It can lead to improved allocation of production department costs to service departments.
C)It results in identifying more accurate cost-allocation bases.
D)None of the answers is correct.

Question 54

Why do companies allocate joint-process costs?

A)Performance evaluation
B)Reporting purposes
C)Establishing regulated rates
D)All of the answers are correct.

Question 55

The methodology(ies)of allocating joint-process costs is(are)based on

A)net realizable value,only.
B)physical measures,only.
C)both net realizable value and physical measures.
D)None of the answers is correct.

Question 56

Which of the following statements is true concerning finding a cost-allocation base for activity-based costing?

A)Finding the cost-allocation base is justified if the benefits from improved decisions exceed the costs of finding and using the base.
B)Finding the cost-allocation base is usually difficult and costly.
C)Finding the cost-allocation base may require the accumulation of extensive data in addition to the regular accounting information.
D)All of the answers are correct.

Question 57

Which of the following statements is true concerning the net realizable value method of joint-process costing?

A)The method implies a matching of output costs with revenues generated by each input.
B)The method implies a matching of input costs with revenues generated by each output.
C)The method implies a matching of input revenues with costs generated by each output.
D)The method implies a matching of output costs with revenues generated by each input.

Question 58

A method for allocating joint-process costs is based on

A)opportunity costs.
B)outlay costs.
C)indirect costs.
D)net realizable value.

Question 59

Why bother allocating joint-process costs?

A)It is a performance measurement.
B)It is used for determining and responding to regulatory rate changes.
C)It is used in estimating casualty losses.
D)All of the answers are correct.

Question 60

Marketing and administrative costs are allocated to departments for purposes of performance evaluation using techniques

A)similar to those employed in allocating service department costs.
B)different than those employed in allocating service department costs.
C)similar to those employed in allocating production department costs.
D)different than those employed in allocating common department costs.

Question 61

Useful Tool Company
Useful Tool Company has two service departments (General Factory and Repair)and two operating departments (Fabrication and Assembly).Management has decided to allocate repair costs on the basis of the area (square feet)in each department and to allocate General Factory on the basis of labor hours worked by the employees in each of their respective departments.
The following data appear in the company records for the current period:

The company allocates the costs from the General Factory Department first.
Refer to the Useful Tool Company.Using the step method,what is the total amount of costs allocated to (a)the Fabrication Department and (b)the Assembly Department?

Question 62

Why are service department costs allocated to producing departments?

Question 63

Which of the following is the method of allocating joint costs based on a physical measure of volume,weight,or any other common measure of physical characteristics?

A)absolute quantities method.
B)physical qualities method.
C)physical quantities method.
D)absolute qualities method.

Question 64

How are marketing and administrative costs allocated to departments for purposes of performance evaluation?

Question 65

How are joint-process costs allocated?

Question 66

Manufacturing companies are required to allocate joint-process costs in the valuation of inventories and cost of goods sold for

A)financial reporting,only.
B)tax reporting,only.
C)managerial reporting,only.
D)both financial and tax reporting.

Question 67

Why are joint-process costs allocated?

Question 68

Describe the factors that should be considered in allocating service department costs.

Question 69

Useful Tool Company
Useful Tool Company has two service departments (General Factory and Repair)and two operating departments (Fabrication and Assembly).Management has decided to allocate repair costs on the basis of the area (square feet)in each department and to allocate General Factory on the basis of labor hours worked by the employees in each of their respective departments.
The following data appear in the company records for the current period:

The company allocates the costs from the General Factory Department first.
Refer to the Useful Tool Company.Using the direct method,what is the total amount of costs allocated to (a)the Fabrication Department and (b)the Assembly Department?

Question 70

Useful Tool Company
Useful Tool Company has two service departments (General Factory and Repair)and two operating departments (Fabrication and Assembly).Management has decided to allocate repair costs on the basis of the area (square feet)in each department and to allocate General Factory on the basis of labor hours worked by the employees in each of their respective departments.
The following data appear in the company records for the current period:

The company allocates the costs from the General Factory Department first.
Refer to the Useful Tool Company.Using machine hours as the base and the step method of allocation,what is the overhead rate for the Fabrication Department?

Question 71

Why bother allocating joint-process costs?

A)It is a performance measurement.
B)It is used in resolving contractual disputes.
C)It is used for estimating casualty losses
D)All of the answers are correct.

Question 72

The method of allocating joint costs used when output product prices are highly volatile or when significant processing occurs between the splitoff point and the first point of marketability is called the

A)absolute quantities method.
B)physical qualities method.
C)physical quantities method.
D)absolute qualities method.

Question 73

The method of allocating joint costs used when product prices are not set by the market (for example with heavily regulated companies)is called the

A)absolute quantities method.
B)physical qualities method.
C)physical quantities method.
D)regulation method.

Question 74

How is activity-based costing used to allocate service department costs?

Question 75

Waterbury Box Company
General Factory Administration and Maintenance are service departments in the Waterbury Box Company.Management has decided to allocate maintenance costs on the basis of the area in each department and general factory administration costs on the basis of labor hours the employees worked in each of their respective departments.
The following data appears in the company records for the current period:

Refer to the Waterbury Box Company.Use the direct method to allocate service department costs to the operating departments.

Question 76

Waterbury Box Company
General Factory Administration and Maintenance are service departments in the Waterbury Box Company.Management has decided to allocate maintenance costs on the basis of the area in each department and general factory administration costs on the basis of labor hours the employees worked in each of their respective departments.
The following data appears in the company records for the current period:

Refer to the Waterbury Box Company.What are the total service department costs allocated using each method?

Question 77

A method for allocating joint-process costs is based on

A)opportunity costs.
B)outlay costs.
C)indirect costs.
D)physical measures.

Question 78

Big Farms LLC has two production departments (Planting and Harvesting)and two service departments (Cafeteria and Repairs. )The service department's costs must be allocated to production departments.Management has decided to allocate the cost of the cafeteria to other departments based upon the average number of employees and the cost of the Repairs Department based upon the number of machine hours used.

Regardless of the allocation method used,Big Farm always starts the allocation process with the Cafeteria Department.
If Big Farm uses the step method,what additional overhead costs should be allocated from the service departments to the Planting Department?

Question 79

Useful Tool Company
Useful Tool Company has two service departments (General Factory and Repair)and two operating departments (Fabrication and Assembly).Management has decided to allocate repair costs on the basis of the area (square feet)in each department and to allocate General Factory on the basis of labor hours worked by the employees in each of their respective departments.
The following data appear in the company records for the current period:

The company allocates the costs from the General Factory Department first.
Refer to the Useful Tool Company.Using direct labor hours as the base and the direct method of allocation,what is the overhead rate for the Assembly Department?

Question 80

Waterbury Box Company
General Factory Administration and Maintenance are service departments in the Waterbury Box Company.Management has decided to allocate maintenance costs on the basis of the area in each department and general factory administration costs on the basis of labor hours the employees worked in each of their respective departments.
The following data appears in the company records for the current period:

Refer to the Waterbury Box Company.Use the step method to allocate service department costs to the operating departments,starting with general factory administration.