Deck 12: Cost Accumulation, Tracing, and Allocation

Question 1

Select the incorrect statement from the following.

A) The difference between a direct cost and an indirect cost is that the direct cost is physically present in the cost object.
B) Actual costs are useful for evaluating managerial performance.
C) Actual costs are not relevant in many decisions because actual costs cannot be determined until after the decision has been made.
D) When accumulating the cost of a specific cost object, the indirect costs are allocated to the cost object.

Answer 1

A

Question 2

Craig Manufacturing Company operates its three production departments within a single facility. Each department produces its own products and maintains its own production equipment. Although they share a common facility, each department is overseen by a separate supervisor. Which one of the following costs is a direct cost of each department?

A) Lease payment on facility
B) Depreciation on the facility
C) Production supervisor salary
D) Plant manager salary

Answer 2

C

Question 3

Managers of a discount store chain are considering whether to add a new auto service department. In reaching this decision, the managers should consider:

A) Direct costs only.
B) Both direct and indirect costs.
C) Neither direct nor indirect costs.
D) Indirect costs but not direct costs.

Answer 3

B

Question 4

Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

A) It meets guidelines imposed by generally accepted accounting principles.
B) It can be traced to a division in a cost-effective manner.
C) It is a variable cost.
D) It can be allocated to a division.

Question 5

A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?

A) The costs of wood and glue would be treated as direct costs.
B) Wood, glue, and varnish would all be direct materials.
C) Wood would be accounted for as a direct cost, and glue and varnish as indirect costs.
D) The concepts of direct and indirect costs are not applicable here.

Question 6

Overhead costs include:

A) Direct and indirect costs.
B) Indirect costs only.
C) Direct costs only.
D) Neither direct nor indirect costs.

Question 7

Some costs that possibly could be traced directly to cost objects are nonetheless classified as indirect costs because:

A) Such costs cannot be traced to objects in a cost-effective manner.
B) Such practice results in a more accurate accumulated cost for the object.
C) Generally accepted accounting principles require some costs to be treated as indirect.
D) All of these answers are correct.

Question 8

Which of the following statements is true regarding the salary of the manager of a fast food hamburger restaurant?

A) The salary is a fixed cost that is directly traceable to the cost of making hamburgers.
B) The salary is a variable cost that is directly traceable to the cost of operating a specific restaurant.
C) The salary is a variable cost that cannot be traced to the cost of operating a specific restaurant.
D) None of these answers is correct.

Question 9

Which of the following statements is true?

A) Indirect costs can easily be traced to a cost object; direct costs cannot be easily traced to a cost object.
B) Both direct and indirect costs can easily be traced to a cost object.
C) Neither direct nor indirect costs are easily traced to a cost object.
D) Direct costs can be traced easily to a cost object, but indirect costs cannot be easily traced to a cost object.

Question 10

Cost allocation involves:

A) identifying a cost driver for each cost to be allocated.
B) calculating an allocation rate for each cost to be allocated.
C) multiplying the allocation rate by the weight of the cost driver.
D) All of these answers are correct.

Question 11

Which of the following is not an example of a cost object and its related cost driver?

A) Option A
B) Option B
C) Option C
D) Option D

Question 12

Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store?

A) The cost of heating and air conditioning.
B) The cost of supplies.
C) The cost of the department manager's salary.
D) Rent on the store building.

Question 13

Which of the following costs generally can be traced directly to units of product?

A) Indirect materials
B) Overhead costs
C) Assembly labor
D) Indirect materials and assembly labor

Question 14

Cobalt Company management has identified the following cost objects:
Cost Object 1: The cost of operating the finishing department
Cost Object 2: The cost of operating the factory
Cost Object 3: The cost of a particular product made in June
With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified? $\begin{array}{lll}&\text { Object } 1&\text { Object } 2&\text { Object } 3\\ A.&\text { Direct } & \text { Direct } & \text { Direct } \\B.&\text { Direct } & \text { Direct } & \text { Indirect } \\C.&\text { Indirect } & \text { Indirect } & \text { Indirect } \\D. &\text { Indirect } & \text { Indirect } & \text { Direct }\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 15

Select the false statement from the following.

A) Only direct costs are traced to cost objects.
B) The same cost may be assigned to more than one cost object.
C) General, selling, and administrative costs cannot be assigned to a cost object.
D) A given cost can be driven by more than one cost driver.

Question 16

Cost accumulation is used to:

A) Determine the cost of a particular cost object.
B) Identify and estimate opportunity costs.
C) Identify fixed and variable costs.
D) Set the selling price for a service.

Question 17

Southeast Manufacturing Company has identified the following cost objects:
Cost Object 1: The cost of operating the finishing department
Cost Object 2: The cost of a particular product made in June
Cost Object 3: The cost of operating the factory
With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects:

A) 1 and 2.
B) 2 and 3.
C) 1 and 3.
D) 1, 2, and 3.

Question 18

Blankenship Company operates a factory with two departments, X and Y. The utilities to heat and light the manufacturing facility would most likely be allocated to departments X and Y on the basis of:

A) Square footage occupied.
B) Machine hours.
C) Direct labor hours.
D) Units sold.

Question 19

Cost objects may be:

A) Products.
B) Services.
C) Departments.
D) All of these answers are correct.

Question 20

Overhead costs:

A) Cannot be traced to cost objects in a cost-effective manner, but are instead allocated to cost objects.
B) Cannot be allocated to cost objects.
C) Are always variable costs.
D) Are only incurred by manufacturing companies.

Question 21

At the beginning of the year, Rangle Company expected to incur $54,000 of overhead costs in producing 6,000 units of product. The direct material cost is $20 per unit of product. Direct labor cost is $30 per unit. During January, 600 units were produced. The total cost of the units made in January was:

A) $30,000
B) $5,400
C) $35,400
D) None of these answers is correct.

Question 22

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { | l | l | l | } \hline & \text { Product A } & \text { Product B } \\\hline \text { Direct materials } & \$ 20,000 & \$ 15,000 \\\hline \text { Direct labor } & 12,000 & 24,000 \\\hline\end{array}$$ The company's overhead costs of $108,000 are allocated based on direct labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What is the cost per unit for product B? (Do not round your intermediate calculations.)

A) $7.80
B) $22.20
C) $16.80
D) None of these answers is correct.

Question 23

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $360,000 a year. It is estimated that these employees move 600,000 pounds of material per year. If 60,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? (Do not round your intermediate calculations.)

A) $36,000
B) $24,000
C) $50,000
D) $38,000

Question 24

Selection of a cost driver depends on:

A) The availability of information for both the cost and the potential cost driver.
B) A cause-and-effect relationship between the cost driver and the cost.
C) Judgment of management.
D) All of these answers are correct.

Question 25

Jiminez Company paid its annual property tax of $6,000 on its manufacturing facility in January. The company expects to make 4,000 units of product during the year. During January, 300 units of product were produced. Based on this information:

A) $450 of the property tax cost should be allocated to the January production.
B) $1,500 of the property tax cost should be allocated to the January production.
C) $6,000 of the property tax cost should be assigned to the January production.
D) $500 of the property tax cost should be allocated to the January production.

Question 26

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { | l | c | l | } \hline & \text { Product } \mathrm { A } & \text { Product B } \\\hline \text { Direct materials } & \$ 20,000 & \$ 15,000 \\\hline \text { Direct labor } & 12,000 & 24,000 \\\hline\end{array}$$ The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round your intermediate calculations.)

A) $36,000
B) $111,000
C) $68,000
D) None of these answers is correct.

Question 27

During 2013, the Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:

A) Number of homes built during the month.
B) Number of months in the year.
C) Number of homes built during the year.
D) Size of the home.

Question 28

Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?

A) $175
B) $195
C) $415
D) $290

Question 29

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the 2013 accounting period is as follows: The predetermined overhead rate based on units produced is (rounded to the nearest penny) is:

A) $1.50 per unit.
B) $2.67 per unit.
C) $18.00 per unit.
D) $42.00 per unit.

Question 30

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $50,000 of store rental costs in 2013. The departments identified the following cost drivers for 2013: $$\begin{array} { | l | r | r | r | } \hline & \text { Men's } & \text { Women's } & \text { Children's } \\\hline \text { Labor dollars } & \$ 530,000 & \$ 775,000 & \$ 240,000 \\\hline \text { Number of employees } & 10 & 20 & 4 \\\hline \text { Square footage } & 3,000 & 8,000 & 1,000 \\\hline \text { Number of sales transactions } & 300,000 & 900,000 & 90,000 \\\hline\end{array}$$ Using the most appropriate cost driver, how much rental cost (rounded to the nearest dollar) should be allocated to the Women's Department? (Do not round your intermediate calculations.)

A) $33,333
B) $29,412
C) $25,081
D) $34,884

Question 31

Which of the following is not a step in allocating indirect costs to cost objects?

A) Multiply the allocation rate by the weight of the cost driver.
B) Trace direct costs to individual cost pools.
C) Compute an allocation rate by dividing the total cost to be allocated by the total cost driver volume.
D) All of these answers are steps in allocating indirect costs.

Question 32

Which of the following statements is false?

A) Both direct and indirect costs can be assigned to a cost object.
B) Cost drivers are often selected based on the availability of information.
C) Volume measures are good drivers for fixed overhead costs.
D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.

Question 33

For a manufacturer, measures of volume may include:

A) Number of units produced.
B) Number of square feet occupied.
C) Amount of direct materials used in production.
D) Both number of units produced and amount of direct materials used in production are correct.

Question 34

Marsden Company has three departments occupying the following amount of floor space: $$\begin{array} { | l | l | } \hline \text { Department 1 } & 15,000 \text { sq. ft. } \\\hline \text { Department 2 } & 10,000 \text { sq. ft. } \\\hline \text { Department } 3 & 25,000 \text { sq. ft. } \\\hline\end{array}$$ How much store rent should be allocated to Department 3 if total rent is equal to $200,000? (Do not round your intermediate calculations.)

A) $100,000
B) $50,000
C) $66,667
D) None of these answers is correct.

Question 35

At the beginning of 2013, Barcroft Co. estimated that its total annual fixed overhead costs would amount to $25,000. Further, Barcroft estimated that its volume of production would be 2,000 units of product. Based on these estimates, Barcroft computed a predetermined overhead rate that was used to allocate overhead costs to the products made in 2013. As predicted, actual fixed overhead costs did amount to $25,000. However, actual volume of production amounted to 2,200 units of product. Based on this information alone:

A) Products were costed accurately in 2013.
B) Products were overcosted in 2013.
C) Products were undercosted in 2013.
D) The answer cannot be determined from the information provided.

Question 36

Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents. Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours. Based on this information:

A) $4 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
B) $20.80 of overhead cost should be allocated to each camping tent regardless of the type of tent made.
C) $16 of overhead cost should be assigned to each standard camping tent and $40 of overhead cost should be assigned to each deluxe tent.
D) None of these answers is correct.

Question 37

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?

A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses

Question 38

Select the correct statement from the following.

A) The allocation base determines whether a cost is classified as direct or indirect.
B) The same cost cannot be classified as both direct and indirect.
C) Relevant costs can include direct and indirect costs.
D) Direct costs always display a variable behavior pattern.

Question 39

The process of dividing a total cost into parts and assigning it to cost objects is known as:

A) cost tracing.
B) cost division.
C) cost allocation.
D) None of these answers is correct.

Question 40

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,000,000 to maintain its railroad track. Pertinent data for the two divisions are as follows:
Total Miles Traveled: $$\begin{array} { | l | l | } \hline \text { Western Division } & 800,000 \text { miles } \\\hline \text { Pacific Division } & 1,200,000 \text { miles } \\\hline\end{array}$$
The amount of track improvement cost that should be allocated to the Western Division is: (Do not round your intermediate calculations.)

A) $4,000,000.
B) $3,200,000.
C) $800,000.
D) $5,333,333.

Question 41

Which of the following is not an important factor in determining the appropriate cost driver to use in allocating a cost?

A) A cause-and-effect relationship between the cost and the cost driver
B) The availability of information about the cost and cost driver
C) The ability of the cost driver to allocate indirect costs to cost objects
D) All of these are important factors in determining the appropriate cost driver to use in allocating a cost

Question 42

Herald Manufacturing Company uses a predetermined overhead rate to allocate fixed manufacturing overhead to production on a monthly basis. At the end of the accounting period it was determined that actual overhead cost was less than the estimated overhead cost and that the actual volume of production was higher than estimated. Based on this information alone:

A) The correct amount of cost was assigned to products during the accounting period.
B) Too much cost was assigned to products during the accounting period.
C) Too little cost was assigned to products during the accounting period.
D) The answer cannot be determined from the information provided.

Question 43

Allocation of costs to various cost objects:

A) may affect managers' performance evaluation.
B) may affect the overall profitability of a company.
C) may affect the apparent profitability of the various products a company makes.
D) Both may affect managers' performance evaluation and may affect the apparent profitability of the various products a company makes are correct.

Question 44

Which formula best represents the first step used to allocate an indirect cost to a cost object?

A) Total cost to be allocated/cost driver
B) Cost driver/allocation rate
C) Cost driver/total cost to be allocated
D) Allocation rate/total cost to be allocated

Question 45

Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following should not be treated as direct costs, assuming the cost object is individual clocks?

A) The clock face
B) The timing mechanism for each clock
C) Wood
D) Depreciation on clock-making equipment

Question 46

Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of 2013, Danforth estimated that total annual fixed overhead costs would amount to 60,000. Further, Danforth estimated that the annual volume of production would be 1,000 units of product. Based on these estimates, Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year. As predicted, the actual volume of production amounted to 1,000 units of product. However, actual fixed overhead costs amounted to $56,000. Based on this information alone:

A) a lower than appropriate selling price was assigned to products in 2013.
B) a higher than appropriate selling price was assigned to products in 2013.
C) the correct selling price was assigned to products in 2013.
D) the answer cannot be determined from the information provided.

Question 47

Which of the following is not a true statement regarding the pooling of indirect costs?

A) Costs that have been pooled for one purpose may require disaggregation for a different purpose.
B) Pooling costs that have different cost drivers may result in unreliable cost allocation.
C) A single cost pool will have more than one cost driver for different cost objects.
D) Pooled costs may require disaggregation when allocating costs for different purposes.

Question 48

A factor having a "cause and effect" relationship with a cost object is called a(n):

A) cost driver
B) allocation base
C) direct cost
D) indirect cost

Question 49

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2014, the company expects to make 2,000 comforters. With respect to the comforters, how would the supervisory salaries be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 50

All of the following are examples of indirect costs that can be classified as being variable costs except:

A) Utilities.
B) Material handling costs.
C) Production supervisor salaries.
D) Transportation costs.

Question 51

Which of the following best describes the term used to assign indirect costs to a cost object?

A) Cost tracing
B) Cost allocation
C) Cost assignment
D) Cost accumulation

Question 52

Assume that a factory seeks to allocate rent to several departments that occupy the factory. The factory is occupied by all the departments. Which of the following is the most logical cost driver for allocating the factory rent?

A) Number of employees
B) Square footage occupied by each department
C) Machine hours
D) Number of labor hours in each department

Question 53

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2014, the company expects to make 2,000 comforters. With respect to the comforters, how would the wages of sewing machine operators be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 54

Indirect costs are often pooled, and not allocated individually because:

A) individual allocation would be more timely.
B) individual allocation would be more accurate.
C) individual allocation would be tedious.
D) the benefits of individual allocation of indirect costs are greater than the costs.

Question 55

Which of the followings statements is correct regarding direct and indirect costs?

A) Direct costs cannot easily be traced to a cost object, whereas indirect costs can be easily traced to a cost object.
B) Direct costs can be easily traced to a cost object, whereas indirect costs cannot be easily traced to a cost object.
C) Direct costs are always relevant to a particular cost decision, whereas indirect costs are never relevant to a cost decision.
D) Direct costs are never relevant to a particular cost decision, whereas indirect costs are always relevant to a cost decision.

Question 56

Pets 'n Pals is attempting to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost?

A) Fees paid to external accountant for corporate audit
B) Cost of operating company owned vehicles by the store
C) Salary of store manager
D) Cost of aquariums used to display exotic fish

Question 57

Which of the following is an appropriate cost driver for allocating indirect costs to a human resources department in a service company?

A) Number of employees
B) Number of customers
C) Square footage of office space
D) Both number of employees and square footage of office space are correct.

Question 58

Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department?

A) Salary of the clock production supervisor
B) Depreciation on the factory building
C) Depreciation on clock-making equipment
D) All of these answers are correct.

Question 59

Which of the following regarding direct costs is a correct statement?

A) Direct costs are always fixed costs.
B) Direct costs are always variable costs.
C) Direct costs are easily traced to cost objects.
D) Direct costs are never selling and administrative expenses.

Question 60

Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2012, the company expects to make 2,000 comforters. With respect to the comforters how would the fabric used to make the comforters be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

Question 61

Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs.

Question 62

Nature's Soap manufactures Bar soap and Liquid soap. Of the following costs, which would be an indirect cost to the Liquid Department?

A) Liquid manager's salary
B) Manufacturing plant insurance
C) Depreciation of the liquefying equipment
D) Liquid Fragrance

Question 63

The goal in allocating a cost to cost objects is to achieve a rational allocation.

Question 64

Costs that can be traced to a cost object in a cost-effective way are called direct costs.

Question 65

A cost object is anything for which management desires a separate tracking of costs, while a cost driver is the factor that causes the cost object to increase or decrease.

Question 66

How a particular cost behaves (fixed versus variable) is dependent of whether the cost is classified as direct or indirect.

Question 67

Both direct and indirect costs can be relevant to a particular decision.

Question 68

Alleghany Community College operates four departments. The square footage used by each department is shown below. $\begin{array}{|l|r|}\hline{\text { De partment }} & \text { Square Footage } \\\hline \text { Accounting } & 3,000 \\\hline \text { Marketing } & 4,000 \\\hline \text { Technology } & 6,000 \\\hline \text { Sciences } & 3,000 \\\hline {\text { Total }} & \mathbf{1 6 , 0 0 0} \\\hline\end{array}$ Alleghany's annual building rental cost is $320,000
What amount of rent expense that should be allocated to the Sciences Department?

A) $60,000
B) $80,000
C) $120,000
D) $106,667

Question 69

Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments, A, B, and
C. Assuming the three departments occupy 10,000, 20,000 and 30,000 square feet respectively, the cost allocation rate for Department C is $0.80 per square foot.

Question 70

The first step in cost accumulation is to identify cost objects.

Question 71

Alleghany Community College operates four departments. The square footage used by each department is shown below. $\begin{array}{|l|r|}\hline{\text { De partment }} & \text { Square Footage } \\\hline \text { Accounting } & 3,000 \\\hline \text { Marketing } & 4,000 \\\hline \text { Technology } & 6,000 \\\hline \text { Sciences } & 3,000 \\\hline {\text { Total }} & \mathbf{1 6 , 0 0 0} \\\hline\end{array}$ Alleghany's annual building rental cost is $320,000.
What amount of rent expense that should be allocated to the Technology Department?

A) $60,000
B) $80,000
C) $120,000
D) $192,000

Question 72

A manager believes that the number of units sold drives the company's selling costs. The number of units sold would be referred to as the cost driver.

Question 73

The accuracy of managerial accounting information usually is more important than timeliness.

Question 74

The following are Acme's production costs for the quarter ended September 30^th: $$\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 150,000 \\\hline \text { Direct labor } & \$ 175,000 \\\hline \text { Factory overhead } & \$ 225,000 \\\hline\end{array}$$ What amount of costs should be traced to specific products in the process?

A) $150,000
B) $175,000
C) $225,000
D) $325,000

Question 75

Cost allocation is the process of dividing a total cost into its fixed and variable components.

Question 76

The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing.

Question 77

The most useful cost driver for allocating a particular cost is the one with the strongest cause-and-effect relationship.

Question 78

An allocation base has a cause-and-effect relationship with a cost object.

Question 79

It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

Question 80

Which of the following statements is incorrect?

A) A predetermined overhead rate may be used to allocate overhead costs when volume varies during the year.
B) A predetermined overhead rate is calculated using actual cost and volume data.
C) A predetermined overhead rate is calculated by dividing costs by volume, using a measure of volume such as direct labor hours or direct materials cost.
D) A company may need to allocate overhead costs to products to make pricing decisions for the products.