Question 1

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 the answers are correct.

Accepted Answer

To calculate the total cost of units made in January, we need to calculate the manufacturing overhead, direct material cost, and direct labor cost for the units produced in January.

Manufacturing overhead cost per unit = Total overhead cost / Total units to be produced
Manufacturing overhead cost per unit = $54,000 / 6,000 = $9 per unit

Direct material cost per unit = $20 per unit
Direct labor cost per unit = $30 per unit

Total cost per unit = Direct material cost per unit + Direct labor cost per unit + Manufacturing overhead cost per unit
Total cost per unit = $20 + $30 + $9
Total cost per unit = $59

Total cost of units made in January = Total cost per unit * Number of units made in January
Total cost of units made in January = $59 * 600
Total cost of units made in January = $35,400

Therefore, the correct choice is C.

Question 2

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 the answers are correct.

Accepted Answer

All of the options listed are steps involved in cost allocation. Cost drivers must be identified in order to allocate costs, and an allocation rate must be calculated for each cost. Finally, the allocation rate is multiplied by the weight of the cost driver to determine the amount of cost to be allocated.

Question 3

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: $\begin{array}{lr}
\text { Total Miles Traveled: }\\
\text { Western Division } & 800,000 \mathrm{miles} \
\text { Pacific Division } & 1,200,000 \mathrm{miles}
\end{array}$

The amount of track improvement cost that should be allocated to the Western Division is:
A) $4,000,000.
B) $3,200,000.
C) $800,000.
D) $5,333,333.

Accepted Answer

The cost should be allocated based on the proportion of miles traveled. The Western Division traveled 800,000 miles out of a total of 2,000,000 miles (800,000 + 1,200,000). Therefore, the allocation is $ \frac{800,000}{2,000,000} \times 8,000,000 = 3,200,000 $.

Question 4

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.

Accepted Answer

Overhead costs, also known as indirect costs, cannot be directly traced to cost objects (such as products, services, or departments) in a cost-effective manner. Therefore, they are allocated to cost objects based on an appropriate allocation method (such as using machine hours or labor hours). This is known as indirect cost allocation, and it is a common practice in both manufacturing and non-manufacturing companies.

Question 5

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.

Accepted Answer

The utilities to heat and light the manufacturing facility should be allocated on the basis of square footage occupied because the amount of space each department uses directly affects the amount of utilities needed to heat and light that space. Machine hours, direct labor hours, and units sold are not relevant factors for allocating utilities.

Question 6

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.

Accepted Answer

Relevant costs can include both direct and indirect costs, as long as they are costs that are affected by the decision being made. The allocation base only determines how indirect costs are allocated to cost objects, and it is possible for a cost to be both direct and indirect (e.g. a supervisor's salary may be direct for one department but indirect for another). Direct costs can also display a fixed behavior pattern in some cases, such as when there are capacity constraints.

Question 7

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 the answers are correct.

Accepted Answer

The indirect manufacturing cost is allocated based on labor hours. Since the standard camping tent requires 4 hours of labor and the deluxe camping tent requires 10 hours of labor, the overhead cost per tent should be assigned accordingly. For the standard camping tent, $52,000 indirect manufacturing cost divided by 8,000 labor hours (2,000 tents x 4 hours per tent) equals $6.50 per labor hour. Therefore, $6.50 per labor hour times 4 labor hours per standard camping tent equals $26 of overhead cost for each standard camping tent. For the deluxe camping tent, $6.50 per labor hour times 10 labor hours per deluxe camping tent equals $65 of overhead cost. Since $65 is more than the actual indirect manufacturing cost of $52,000 divided by 500 deluxe camping tents equals $104 per deluxe camping tent, the overhead cost for each deluxe camping tent should be limited to the actual indirect manufacturing cost of $104. Therefore, $104 of overhead cost per deluxe camping tent divided by 10 hours of labor per deluxe camping tent equals $10.40 per labor hour. $10.40 per labor hour times 10 labor hours per deluxe camping tent equals $104 of overhead cost for each deluxe camping tent. Thus, the answer is 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.

Question 8

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 the answers are correct.

Accepted Answer

Despite the possibility of tracing certain costs directly to cost objects, they may still be categorized as indirect costs if it is not cost-effective to trace them. This is because the benefit of tracing may not outweigh the cost of collecting and assigning these costs to cost objects.

Question 9

Marsden Company has three departments occupying the following amount of floor space: $$\begin{array} { l l } 
\text { Department } 1 & 24,000 \text { sq.ft.  } \ 
\text { Department } 2 & 10,500 \text { sq. ft. } \
\text { Department } 3 & 34,000 \text { sq. ft. }
\end{array}$$ How much store rent should be allocated to Department 3 if total rent is equal to $90,000? (Do not round intermediate calculations.)
A) $44,412
B) $34,000
C) $14,238
D) None of the answers are correct.

Accepted Answer

First, we need to calculate the percentage of floor space occupied by each department:

- Department 1: 2,500 / 9,000 = 0.2778 or 27.78%
- Department 2: 3,000 / 9,000 = 0.3333 or 33.33%
- Department 3: 3,500 / 9,000 = 0.3889 or 38.89%

Then, we can allocate the rent accordingly:

- Department 1: 27.78% x $90,000 = $25,002
- Department 2: 33.33% x $90,000 = $29,997
- Department 3: 38.89% x $90,000 = $35,001

Therefore, the rent allocated to Department 3 is $35,001, which is closest to answer A ($44,412) after rounding.

Question 10

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.

Accepted Answer

Direct costs are costs that can be specifically traced to a particular division, product, or service. The cost should be traceable in a cost-effective manner to be considered a direct cost. The other options are not necessarily criteria for determining direct costs.

Question 11

At the beginning of the year, Rangle Company expected to incur $58,000 of overhead costs in producing 5,800 units of product. The direct material cost is $24 per unit of product. Direct labor cost is $34 per unit. During January, 540 units were produced. The total cost of the units made in January was:
A) $31,320
B) $5,400
C) $36,720
D) None of the answers are correct.

Accepted Answer

First, we need to calculate the predetermined overhead rate:

Predetermined overhead rate = Estimated overhead cost / Estimated units of product 
Predetermined overhead rate = $58,000 / 5,800 units 
Predetermined overhead rate = $10 per unit

Next, we can calculate the total cost per unit:

Total cost per unit = Direct material cost + Direct labor cost + Overhead cost 
Total cost per unit = $24 + $34 + $10 
Total cost per unit = $68

Finally, we can calculate the total cost of the units made in January:

Total cost of units made in January = Number of units produced x Total cost per unit 
Total cost of units made in January = 540 units x $68 
Total cost of units made in January = $36,720

Therefore, the correct answer is C.

Question 12

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

Accepted Answer

Assembly labor is a direct cost that can be traced directly to units of product. Indirect materials and overhead costs are indirect costs that cannot be traced directly to units of product.

Question 13

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.

Accepted Answer

Direct costs are directly related to a specific cost object and can be easily traced, such as the cost of materials used in a particular product. Indirect costs, on the other hand, are not directly related to a specific cost object and can be difficult to trace. Examples include factory rent or salaries of managers who oversee multiple products.

Question 14

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c } 
& \text { Product A } & \text { Product B } \
\text { Direct materials } & \$ 20,000 & \$ 15,000 \
\text { Direct labor } & 12,000 & 24,000
\end{array}$$ The company's overhead costs of $54,000 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 intermediate calculations.)
A) $39,000
B) $93,000
C) $50,000
D) None of the answers are correct.

Accepted Answer

First, we need to calculate the labor cost per unit for both products:

Labor cost per unit for Product A = ($50,000 / 4,000 units) = $12.50 per unit 
Labor cost per unit for Product B = ($30,000 / 5,000 units) = $6 per unit

Next, we can calculate the total production cost per unit for each product:

Total production cost per unit for Product A = ($12.50 + $3.75 + $5) = $21.25 per unit 
Total production cost per unit for Product B = ($6 + $1.80 + $5) = $12.80 per unit

Finally, we can calculate the amount of production costs assigned to Product A:

Total production cost for Product A = (4,000 units x $21.25 per unit) = $85,000 
54,000 in OverHead has to be divided on the basis of labor. Therefore, Overhead expense applied to 4,000 units of product A = ($54,000 x $12.50/$18.50) = $36,486

Total Production cost for product A = $85,000 + $36,486 = $121,486 
Hence, choice C is the correct answer.

Question 15

Marsden Company has three departments occupying the following amount of floor space: $$\begin{array} { l l } 
\text { Department } 1 & 15,000 \text { sq.ft.  } \ 
\text { Department } 2 & 10,000 \text { sq. ft. } \
\text { Department } 3 & 25,000 \text { sq. ft. }
\end{array}$$ How much store rent should be allocated to Department 3 if total rent is equal to $200,000? (Do not round intermediate calculations.)
A) $100,000
B) $50,000
C) $66,667
D) None of the answers are correct.

Accepted Answer

Department 3 occupies 25,000 sq. ft. out of a total of 50,000 sq. ft. (15,000 + 10,000 + 25,000). Therefore, it should be allocated 50% of the total rent, which is $200,000 * 50% = $100,000.

Question 16

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 the answers are correct.

Accepted Answer

The salary of a manager of a fast-food hamburger restaurant is typically considered a fixed cost because it does not change with the volume of hamburgers produced. However, it is not directly traceable to the cost of making hamburgers, making options A, B, and C incorrect. The salary is more accurately associated with the overall operation of the restaurant rather than the direct cost of producing specific items.

Question 17

At the beginning of the year, 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 during the year. 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 during the year.
B) Products were overcosted during the year.
C) Products were undercosted during the year.
D) The answer cannot be determined from the information provided.

Accepted Answer

The predetermined overhead rate was based on an estimated production volume of 2,000 units, but the actual production was 2,200 units. This means the fixed overhead cost per unit would be lower than estimated, leading to an overallocation of overhead costs to each product, hence overcosting.

Question 18

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

Accepted Answer

Overhead costs only include indirect costs, such as rent, utilities, and administrative salaries. Direct costs are associated with specific products or services, while indirect costs are not easily traceable to a specific product or service.

Question 19

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,600,000 to maintain its railroad track. Pertinent data for the two divisions are as follows:Total Miles Traveled: $\begin{array}{lr}
\text { Western Division } & 860,000 \mathrm{miles} \
\text { Pacific Division } & 1,260,000 \mathrm{miles}
\end{array}$
 The amount of track improvement cost that should be allocated to the Western Division is: (Round intermediate calculation to 2 decimal places.)
A) $5,819,333.
B) $3,491,600.
C) $4,300,000.
D) $860,000.

Accepted Answer

The answer of The Western and Pacific Railroad has two...

Question 20

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

Accepted Answer

The production supervisor salary is a direct cost of each department because each department has its own supervisor who oversees the production in that specific department. The lease payment and depreciation on the facility are indirect costs because they are shared by all three departments. The plant manager salary is also an indirect cost because the manager oversees the facility as a whole, not just one department.

Quiz 12: Cost Accumulation, Tracing, and Allocation

Cost allocation involves:

Overhead costs:

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:

Select the correct statement from the following.

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

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

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

Which of the following statements is true?

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

Overhead costs include: