Question 1

The Product Data Center has been servicing the Struble Production Casting Department for five years. Beginning next year, the company is adding a Production Molding Department to compliment the materials produced by the Struble Production Casting Department. As a result, data center costs are expected to increase from $700,000 per year to $800,000 per year. The Production Molding Department will use 20% of the data center efforts.
Required:
a. Using the stand-alone cost-allocation method, identify the amount of data center cost that will be allocated to Struble Production Casting and the Production Molding Department next year.
b. Using the incremental cost-allocation method, identify the amount of data center cost that will be allocated to Struble Production Casting and the Production Molding Department next year.

Accepted Answer

The answer of The Product Data Center has been servicing...

Question 2

What is a "common cost"? What are two methods that a manager can use to allocate common costs to two or more users?

Accepted Answer

The answer of What is a "common cost"? What are...

Question 3

The Maintenance Department has been servicing Gizmo Production for four years. Beginning next year, the company is adding a Scrap-Processing Department to recycle the materials from Gizmo Production. As a result, maintenance costs are expected to increase from $480,000 per year to $500,000 per year. The Scrap-Processing Department will use 25% of the maintenance efforts.
Required:
a. Using the stand-alone cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.
b. Using the incremental cost-allocation method, identify the amount of maintenance cost that will be allocated to Gizmo Production and the Scrap-Processing Department next year.

Accepted Answer

The answer of The Maintenance Department has been servicing Gizmo...

Question 4

Cost-based prices:

Accepted Answer

The answer of Cost-based prices:
...

Question 5

Businesses offer bundled products to:

Accepted Answer

Businesses offer bundled products for a combination of reasons, including increasing customer exposure and overall company profitability. Bundled products can provide a convenient and cost-effective option for customers, which can lead to increased sales and revenue for the company. Additionally, bundling products may help simplify the revenue allocation process, but this is not the primary reason for offering bundled products.

Question 6

________ is a package of two or more products (or services)that is sold for a single price but whose individual components may be sold as separate items at their own "stand-alone" prices.

Accepted Answer

A bundled product is a package of two or more products (or services) that are sold for a single price but can also be sold as separate items at their own individual prices. Bundling can be a pricing strategy used by businesses to increase sales and profitability by incentivizing customers to purchase multiple products at once for a discounted price.

Question 7

Contract disputes regarding cost allocation can be reduced by defining:

Accepted Answer

Defining the cost items allowed, terms used for direct labor, and permissible cost-allocation bases can all contribute to reducing contract disputes regarding cost allocation. Therefore, all of these options are correct and the best choice is D.

Question 8

The issue of "allowable costs" is NOT applicable in government cost-plus contracts.

Accepted Answer

Allowable costs are a critical aspect of government cost-plus contracts as they determine which expenses are reimbursable by the government. The government sets specific guidelines and criteria for allowable costs in these types of contracts.

Question 9

The Shapley value method of allocating common costs considers each party as first the primary party and then the incremental party and computes an average allocation.

Accepted Answer

The Shapley value method allocates costs by considering each party's contribution both as the first (primary) party and then incrementally, averaging these contributions across all possible sequences to ensure a fair allocation.

Question 10

________ is a cost that the contract parties agree to include in the costs to be reimbursed.

Accepted Answer

An allowable cost is a cost that has been agreed upon by the contract parties to be included in the costs to be reimbursed. These costs are typically outlined in the contract and may include direct and indirect costs associated with the project. Allowable costs are typically reasonable and necessary expenses that are directly related to the project and are incurred within the period of performance.

Question 11

All contracts with U.S. government agencies must comply with the cost accounting standards issued by the Government Accounting Standards Board (GASB).

Accepted Answer

The Government Accounting Standards Board (GASB) is not responsible for issuing cost accounting standards for contracts with U.S. government agencies. Instead, the Cost Accounting Standards Board (CASB) is responsible for issuing these standards.

Question 12

In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because:

Accepted Answer

In high-cost defense contracts, competitive bidding is often not used because the contracts are complex and require specialized expertise, which limits the number of capable contractors. Additionally, the government may prioritize reliability and past performance over cost.

Question 13

In costs-plus-fixed-fee contracts the allocation of a specific cost may be difficult to defend on the basis of any cause-and-effect reasoning.

Accepted Answer

In costs-plus-fixed-fee contracts, the fixed fee is agreed upon upfront and is not affected by the actual costs incurred. Therefore, the allocation of a specific cost may be difficult to defend on the basis of any cause-and-effect reasoning as it does not affect the fixed fee.

Question 14

All contracts with U.S. government agencies must comply with cost accounting standards issued by the:

Accepted Answer

CASB (Cost Accounting Standards Board) is a government agency that issues cost accounting standards and regulations. Therefore, option D is the correct choice. FASB (Financial Accounting Standards Board) issues accounting standards for the private sector, SEC (Securities and Exchange Commission) regulates public companies, and IRS (Internal Revenue Service) deals with taxation.

Question 15

If the government wants to contract a very large scale project with significant uncertainty about what the final cost will be; often a cost-plus contract is awarded to attract qualified contractors who may otherwise NOT be willing to accept the risks inherent in a guaranteed bid price.

Accepted Answer

A cost-plus contract is often used for projects with significant uncertainty about the final cost, as it allows for the contractor to be reimbursed for their actual costs plus a percentage markup. This can help to mitigate some of the risks associated with a fixed bid price.

Question 16

The stand-alone cost allocation method ranks the individual users of a cost object in order of users most responsible for a common cost and then uses these rankings to allocate the costs among the users.

Accepted Answer

This is the correct definition of the stand-alone cost allocation method.

Question 17

An example of a revenue object is a:

Accepted Answer

A revenue object is anything that can generate revenue for a company. This includes customers, specific products, and divisions of a company.

Question 18

________ occurs where revenues, related but NOT traceable to individual products, are assigned to those individual products.

Accepted Answer

Revenue allocation is the process of assigning revenues that are related but not traceable to individual products to those individual products. This can be done based on cost drivers or sales volume or some other allocation basis. Revenue tracing is the process of identifying the source of revenue or the product or service that generated the revenue. Stand-alone pricing refers to the pricing of a product or service without taking into consideration any bundled or package deals that may be offered. Reciprocal pricing is the practice of setting prices for products or services based on the price of other products or services offered by the same company.

Question 19

AAA offers towing services, auto routing, travel brochures, and other travel services for one annual fee. This is an example of:

Accepted Answer

AAA offers a bundle of products and services for one annual fee. This is known as a bundled product.

Question 20

John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract. What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?

Accepted Answer

The answer of John Peters is drafting the provisions of...

Quiz 15: Allocation of Support-Department Costs, Common Costs, and Revenues