Question 1

Which of the following statements is true concerning lump-sum allocations of service department costs?

Accepted Answer

Lump-sum allocations are fixed amounts and do not change with the activity level in the department receiving the allocation.

Question 2

Which of the following is a measure of activity used to distribute indirect costs?

Accepted Answer

A cost driver is a measure of activity used to distribute indirect costs. Cost objective refers to a specific product, service, or department to which costs are assigned. Cost pool is a grouping of individual cost items. Cost unitization is the process of dividing total cost by the number of units produced to determine the cost per unit. None of these directly relate to measuring activity for the distribution of indirect costs.

Question 3

Which of the following allocations would not occur when the direct method is used in a manufacturing company?

Accepted Answer

The direct method only allocates costs that can be directly traced to a specific department or product. Personnel department costs cannot be directly traced to the maintenance department, therefore it would not be allocated in the direct method.

Question 4

Which of the following is not a criterion typically used to allocate indirect fixed costs?

Accepted Answer

Ability to bear costs, equity, and relative benefits are all common criteria used to allocate indirect fixed costs. Feasible outcomes is not typically used as a criterion for allocation.

Question 5

Lump-sum allocations

Accepted Answer

Lump-sum allocations are fixed and do not change when the activity levels of any user departments change. This can lead to fixed costs appearing variable, however they are not impacted by the usage of the allocated resource by other departments. Lump-sum allocations are typically set for a fixed period of time, and may or may not change year after year depending on the organization's budgeting process.

Question 6

Service department costs are allocated to producing departments

Accepted Answer

Service department costs are allocated to producing departments so that the costs can be allocated to the products in the producing departments. This is necessary to accurately determine the cost of production for each product and to make pricing and production decisions. Allocating less cost to service departments or ensuring that the service is not purchased externally are not the primary reasons for allocating service department costs to producing departments.

Question 7

The advantage of allocating budgeted rather than actual service department costs is that

Accepted Answer

Allocating budgeted rather than actual service department costs prevents service departments from passing on the costs of their inefficiencies and waste to the departments they serve. This encourages more efficient operation and cost control within service departments.

Question 8

A cost pool is

Accepted Answer

The answer of A cost pool is
...

Question 9

Which of the following is the overriding concern in forming a cost pool?

Accepted Answer

The overriding concern in forming a cost pool is to ensure that the costs in the pool are homogeneous or similar. This means that costs that are related to the same activity or function should be grouped together in the same cost pool. This allows for more accurate allocation of costs to products or services, leading to better decision making. The other options listed do not accurately reflect the primary concern in forming a cost pool.

Question 10

When fixed costs are unitized, they

Accepted Answer

Unitizing fixed costs means expressing them on a per unit basis, which is what choice A describes.

Question 11

Managers are correct when they perceive that almost all cost allocations are

Accepted Answer

Cost allocations often involve a degree of arbitrariness because they require assumptions and judgments about how costs are related to various cost objects.

Question 12

An allocation of a predetermined amount that is not affected by changes in the activity level of the organizational unit receiving the allocation is called a(n)

Accepted Answer

A lump-sum allocation is a fixed amount that is predetermined and not affected by changes in activity level, unlike allocation bases that are tied to specific unit measures of activity. Unitized cost is the cost per unit of a product or service, and cost driver is a factor that affects or causes the cost of an activity to change.

Question 13

An allocation base

Accepted Answer

An allocation base ideally uses a cause-and-effect relationship to the cost pool, ensuring that costs are allocated based on how they are actually incurred.

Question 14

Which of the following is a method of allocation used to assign service department costs to production departments, but not to other service departments?

Accepted Answer

The direct method allocates service department costs only to the production departments based on actual usage, while ignoring any allocations to other service departments. The equity method allocates costs to all departments, including other service departments, based on their share of the total costs. The lump-sum method allocates a fixed amount to each department without regard to actual usage. The traditional method uses a step-by-step process of sequentially allocating costs from service departments to production departments, which may include allocations to other service departments.

Question 15

Which of the following is not a service department in a typical manufacturing firm?

Accepted Answer

Security, maintenance, and personnel are all typical service departments in a manufacturing firm. Fabrication, however, is a production department involved in the actual creation of the product.

Question 16

An allocation base

Accepted Answer

An allocation base relates the cost pool to the cost objectives, and is used to allocate costs to specific items based on a common factor. It is not the minimum amount to be allocated or another term for cost pool.

Question 17

Which of the following statements about cost pools is true?

Accepted Answer

Cost pools are groupings of costs that are homogeneous or similar in nature. The costs within a cost pool should be related to a particular activity or function in the organization. Therefore, statement A is true. Statements B, C, and D are incorrect as they do not accurately reflect the nature and purpose of cost pools.

Question 18

Which of the following is not a problem caused by assigning actual service department costs to operating departments based on actual usage of service department activities by the operating departments?

Accepted Answer

All of the answer choices are problems that can arise from assigning actual service costs to operating departments based on actual usage of service department activities.

Question 19

What costs are affected by the manager's decisions for which the manager should be held accountable?

Accepted Answer

Controllable costs are costs that can be directly influenced by a manager's decisions, such as the cost of materials, labor, and overhead. Therefore, managers should be held accountable for these costs. Indirect costs, sunk costs, and pooled costs are not necessarily directly influenced by a manager's decisions and may not be within their control.

Question 20

The Copy Department of Hernandez Hardware is budgeted to incur $30,000 per month in fixed costs plus a cost of $0.02 per copy.The company allocates copy costs to user departments as follows:
-Fixed costs are allocated as a lump sum based on budgeted fixed costs and estimated peak demand for each department.
-Variable costs are allocated based on the budgeted rate per copy times the department's actual usage.
Which of the following is an advantage of this allocation scheme over allocating all actual service costs based on actual usage?

Accepted Answer

Allocating costs based on actual usage may not provide an accurate picture of the cost incurred by each department. Allocating costs based on a predetermined rate per copy times the department's actual usage ensures that the managers are charged for the activities they use. This allows for a better understanding of the cost incurred by each department and promotes better cost control.

Quiz 6: Cost Allocation and Activity-Based Costing

Which of the following statements is true concerning lump-sum allocations of service department costs?

Which of the following is a measure of activity used to distribute indirect costs?

Which of the following allocations would not occur when the direct method is used in a manufacturing company?

Which of the following is not a criterion typically used to allocate indirect fixed costs?

Lump-sum allocations

Service department costs are allocated to producing departments

The advantage of allocating budgeted rather than actual service department costs is that

A cost pool is

Which of the following is the overriding concern in forming a cost pool?

When fixed costs are unitized, they

Managers are correct when they perceive that almost all cost allocations are

An allocation of a predetermined amount that is not affected by changes in the activity level of the organizational unit receiving the allocation is called a(n)

An allocation base

Which of the following is a method of allocation used to assign service department costs to production departments, but not to other service departments?

Which of the following is not a service department in a typical manufacturing firm?

An allocation base

Which of the following statements about cost pools is true?

Which of the following is not a problem caused by assigning actual service department costs to operating departments based on actual usage of service department activities by the operating departments?

What costs are affected by the manager's decisions for which the manager should be held accountable?