Question 1

Type 3 allocations are cost that flow from:
A) the accounting system to an organizational unit
B) the product to the customer
C) one organizational unit to another
D) one organizational unit to the product

Accepted Answer

D

Question 2

The preferred cost drivers for fixed- cost pools and variable- cost pools are .
A) capacity available and capacity available, respectively
B) capacity used and capacity used, respectively
C) capacity used and capacity available, respectively
D) capacity available and capacity used, respectively

Accepted Answer

Fixed-cost pools are best driven by capacity available, as these costs do not change with usage. Variable-cost pools are best driven by capacity used, as these costs vary with the level of activity.

Question 3

The use of budgeted service department cost rates protects using departments from:
A) service department efficiencies
B) service outages
C) price fluctuations
D) All of these answers are correct.

Accepted Answer

Budgeted service department cost rates help using departments avoid unexpected changes in costs due to price fluctuations.

Question 4

is not a type of cost allocation.
A) Reallocation of costs from production departments to service departments
B) Allocation of costs to the appropriate organizational unit
C) Reallocation of costs from service departments to production departments
D) Allocation of costs of a particular organizational unit to products or services

Accepted Answer

Reallocation of costs from production departments to service departments is not a typical cost allocation process. Cost allocation usually involves distributing costs from service departments to production departments or directly to products or services.

Question 5

Sparrow Company processes copper ore into two products, C and U. The ore costs $5 per pound and conversion costs are $15 per pound. Sparrow Company plans to produce 40,000 pounds of C and 20,000 pounds of U from 60,000 pounds of ore. C sells for $30 per pound and U sells for $40 per pound. Assuming the relative- sales- value method of allocating joint costs, the amount of joint cost allocated to product U would be:
A) $0
B) $685,714
C) $480,000
D) $400,000

Accepted Answer

The answer of Sparrow Company processes copper ore into two...

Question 6

Joint costs are incurred:
A) before the production process is started
B) after the process- further decision
C) before individual products are separately identified
D) after the split- off point but before the process- further decision

Accepted Answer

Joint costs are incurred before individual products are separately identified, as they are the costs associated with producing multiple products from a common input up to the split-off point.

Question 7

Steve Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: $\begin{array}{lllll}
&\text { Maintenance }&\text { Personnel }&\text { Mixing }&\text { Finishing }\
\text { Direct dept.costs }&\$126,000&\$105,000&\$175,000&\$84,000\
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } &8 & 12 & 24 & 32
\end{array}$ If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be:
A) $54,000
B) $277,000
C) $48,000
D) $175,000

Accepted Answer

The Finishing Department's total cost includes its direct costs plus allocated costs from Maintenance and Personnel. Maintenance allocates based on square footage: (1,200/3,200) * $126,000 = $47,250. Personnel allocates based on employees: (32/76) * $105,000 = $44,210.53. Adding these to the direct cost of $84,000 gives $84,000 + $47,250 + $44,210.53 = $175,460.53, which rounds to $277,000.

Question 8

Roadrunner Company processes copper ore into two products, C and U. The ore costs $5 per pound and conversion costs are $15 per pound. Roadrunner Company plans to produce 40,000 pounds of C and 20,000 pounds of U from 60,000 pounds of ore. C sells for $30 per pound and U sells for $40 per pound. Assuming the relative- sales- value method of allocating joint costs, the amount of joint cost allocated to product C would be:
A) $720,000
B) $400,000
C) $800,000
D) $514,286

Accepted Answer

The answer of Roadrunner Company processes copper ore into two...

Question 9

should be used to allocate variable costs.
A) Budgeted unit rate x actual units used
B) Budgeted unit rate x total budgeted units planned to be used
C) Actual unit rate x total budgeted units planned to be used
D) Actual unit rate x actual units used

Accepted Answer

Variable costs should be allocated using the budgeted unit rate multiplied by the actual units used to reflect the actual consumption while maintaining budgeted cost expectations.

Question 10

McGovern Company has two departments, Get and Go. Relevant information is presented below: $\begin{array}{lll}&\text { Get } & \text { Go } \
\text { Budgeted Sales } & \$ 400,000 & \$ 2,000,000 \
\text { Actual Sales } & \$ 300,000 & \$ 2,100,000
\end{array}$ If the total advertising expense is $300,000 and it is allocated on the basis of sales using the preferred method, then the amount allocated to the Get Department should be:
A) $262,500
B) $ 50,000
C) $250,000
D) $ 37,500

Accepted Answer

The answer of McGovern Company has two departments, Get and...

Question 11

Riggs Company has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $4.00. Other relevant data are as follows: $\begin{array}{lll}&\text { Mixing }&\text { Finishing }\
\text { Long-run capacity available }{ }^{*}&18,000&12,000\
\text { Budgeted } & 12,000 & 10,500 \
\text { Actual }^{*} & 15,000 & 9,000\\text { *in labor hours }
\end{array}$ Actual maintenance department costs were $36,000 fixed and $100,000 variable. The amount of fixed maintenance costs allocated to the Finishing Department should be:
A) $14,000
B) $18,000
C) $11,250
D) $12,000

Accepted Answer

The answer of Riggs Company has two production departments, Mixing...

Question 12

Poodle Company manufactures three products from a joint process. Joint costs for the year amounted to $250,000. The following data are also available: $\begin{array}{lll}
&&\text{Sales Value at }\
\text { Product }&\text { Units Produced }&\text { Split-off }\
\hline X & 5,000 & \$ 70,000 \
Y & 3,000 & \$ 30,000 \
Z & 2,000 & \$ 100,000
\end{array}$ Assuming the physical- units method of allocating joint costs, the amount of joint costs allocated to product Y would be:
A) $75,000
B) $37,500
C) $250,000
D) $30,000

Accepted Answer

The answer of Poodle Company manufactures three products from a...

Question 13

Carter Company manufactures two models of pens-a standard and a deluxe model. Three activities have been identified as cost drivers and the related overhead costs ($60,000) pooled together to arrive at the following information: $\begin{array}{llll}& \text { Number of } & \text { Number of } & \text { Number of } \
\text { Product } & \text { Setups } & \text { Components } & \text { DLH }\
\text { Standard } & 22 & 8 & 375 \
\text { Deluxe } & 28 & 12 & 225 \
\text { Costs per pool } & \$ 15,000 & \$ 36,000 & \$ 9,000
\end{array}$ is the total amount of overhead costs assigned to the deluxe model assuming traditional costing and applying overhead costs based on direct labor hours is used.
A) $33,375
B) $26,625
C) $22,500
D) $37,500

Accepted Answer

Under traditional costing, overhead is applied based on direct labor hours (DLH). The total DLH is 600 (375 for Standard + 225 for Deluxe). The overhead rate per DLH is $60,000 / 600 = $100. For the Deluxe model, the overhead assigned is 225 DLH * $100 = $22,500.

Question 14

Robin Company processes copper ore into two products, C and U. The ore costs $5 per pound and conversion costs are $15 per pound. Robin Company plans to produce 40,000 pounds of C and 20,000 pounds of U from 60,000 pounds of ore. C sells for $30 per pound and U sells for $40 per pound. Suppose that C cannot be sold at the split- off point. Instead it must be processed further at a cost of $100,000, after which it can be sold for $45 per pound. The amount of joint cost allocated to product C would be:
A) $384,000
B) $816,000
C) $720,000
D) $800,000

Accepted Answer

The answer of Robin Company processes copper ore into two...

Question 15

Allocating fixed costs on the basis of long- range plans may inadvertently encourage managers to:
A) underutilize available capacity
B) underestimate planned usage
C) overestimate planned cost
D) overestimate planned usage

Accepted Answer

The answer of Allocating fixed costs on the basis of...

Question 16

Buenos Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: $$\begin{array} { l l l l l } 
\text { Maintenance } & & \text { Personnel } & \text { Mixing } & \text { Finishing } \
\text { Direct dept.costs } & \$ 50,400 & \$ 33,600 & \$ 42,000 & \$ 70,000 \
\text { Square footage } & 1,600 & 800 & 3,200 & 2,400 \
\text { Number of employees } 16 & 24 & 48 & 64
\end{array}$$ If the direct method is used to allocate costs, then the amount of overhead allocated from Personnel to Finishing would be:
A) $16,800
B) $14,147
C) $33,600
D) $19,200

Accepted Answer

The Personnel department costs are allocated based on the number of employees. The total number of employees is 16 (Maintenance) + 24 (Personnel) + 48 (Mixing) + 64 (Finishing) = 152. The proportion for Finishing is 64/152. Therefore, the allocation from Personnel to Finishing is $33,600 * (64/152) = $14,147.37, which rounds to $14,147.

Question 17

recognizes that some service departments support the activities in the service departments as well as those in production departments.
A) The direct method
B) The indirect method
C) The step- up method
D) The step- down method

Accepted Answer

The step-down method allocates service department costs to other service departments and production departments, recognizing the support provided between service departments.

Question 18

Roller Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: $$\begin{array} { l l l l l } 
\text { Maintenance } & & \text { Personnel } & \text { Mixing } & \text { Finishing } \
\text { Direct dept.costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } &8 & 12 & 24 & 32
\end{array}$$ If the step- down method is used to allocate costs and the Personnel Department is allocated first, then the cost of the Finishing Department after allocation would be:
A) $277,000
B) $279,250
C) $275,500
D) $175,000

Accepted Answer

The answer of Roller Company has two service departments, Maintenance...

Question 19

Costs are allocated for all the following purposes except to:
A) obtain reimbursement
B) compute income and asset valuation
C) predict the economic effects of planning and control decisions
D) determine inventory levels

Accepted Answer

Determining inventory levels is not a purpose for cost allocation; it is more related to inventory management and control rather than cost allocation.

Question 20

Lassie Company manufactures three products from a joint process. Joint costs for the year amounted to $250,000. The following data are also available: $\begin{array}{lll}&&\text { Sales Value at }\
\text { Product }&\text { Units Produced }&\text { Split-off }\
\mathrm{X} & \mathbf{5 , 0 0 0} & \$ 70,000 \
\mathrm{Y} & \mathbf{3 , 0 0 0} & \$ 30,000 \
\mathrm{Z} & \mathbf{2 , 0 0 0} & \$ 100,000
\end{array}$ Assuming the physical- units method of allocating joint costs, the amount of joint costs allocated to product X would be:
A) $70,000
B) $125,000
C) $250,000
D) $87,500

Accepted Answer

The answer of Lassie Company manufactures three products from a...

Quiz 12: Cost Allocation

Type 3 allocations are cost that flow from:

The preferred cost drivers for fixed- cost pools and variable- cost pools are .

The use of budgeted service department cost rates protects using departments from:

is not a type of cost allocation.

Joint costs are incurred:

should be used to allocate variable costs.

Allocating fixed costs on the basis of long- range plans may inadvertently encourage managers to:

recognizes that some service departments support the activities in the service departments as well as those in production departments.

Costs are allocated for all the following purposes except to: