Question 1

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating variable costs of the Computer Department to a user department,which of the following formulas is used?
A) actual computer hours used × (total budgeted variable costs of Computer Department / total budgeted computer hours of Computer Department)
B) budgeted computer hours to be used × (total budgeted variable costs of Computer Department/ total budgeted computer hours of Computer Department)
C) actual computer hours used × (total actual variable costs of Computer Department/ total actual computer hours of Computer Department)
D) budgeted computer hours to be used × (total actual variable costs of Computer Department/ total budgeted computer hours of Computer Department)

Accepted Answer

The correct formula for allocating variable costs is to multiply the actual computer hours used by the rate derived from dividing the total budgeted variable costs by the total budgeted computer hours.

Question 2

Which of the following departments is NOT a service department?
A) laundry department in a hospital
B) maintenance department in a hospital
C) housekeeping department in a hospital
D) surgery floor in a hospital

Accepted Answer

The surgery floor is typically considered a revenue-generating department, rather than a service department, as it directly generates income for the hospital through surgeries and other medical procedures. The laundry, maintenance, and housekeeping departments, on the other hand, are all examples of service departments that exist to support the overall functioning of the hospital but do not directly generate revenue.

Question 3

Some service department activities support customers rather than the production process.These costs are traced directly to ________ instead of ________.
A) products; producing departments
B) producing departments; service departments
C) customers; producing departments
D) service departments; producing departments

Accepted Answer

Service department activities that support customers are traced directly to customers, not to the producing departments, because these activities are not part of the production process but are instead aimed at providing service to the customers.

Question 4

When allocating service department costs to producing departments,which of the following guidelines is NOT followed?
A) Allocate variable- and fixed-cost pools separately.
B) Establish the cost-allocation procedure before rendering the service.
C) Evaluate performance using flexible budgets for each service department.
D) Establish the cost-allocation procedure after rendering the service.

Accepted Answer

The cost-allocation procedure should be established before rendering the service to ensure that it is a fair and reasonable allocation method. Waiting until after the service has been provided could lead to biased allocations. The other options listed (A, B, and C) are all important guidelines that should be followed when allocating service department costs to producing departments.

Question 5

Why do companies develop cost allocation methods to assign service department costs to producing departments?
A) to identify the total cost of production
B) to accurately determine the cost of a product
C) to develop transfer prices for products
D) A and B

Accepted Answer

Companies develop cost allocation methods to assign service department costs to producing departments because it helps to identify the total cost of production and accurately determine the cost of a product. By allocating service department costs, a more accurate picture of the total cost of production can be obtained, which is essential for proper decision making related to pricing, production volume, and profitability analysis. Cost allocation also helps in developing transfer prices for products, which enables companies to ensure that each department is accountable for their contribution to the company's overall profitability.

Question 6

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment.The cost object is the assembly department in a factory.

Accepted Answer

Cubic feet are a logical measure for cost driver of depreciation expenses from heating and air conditioning equipment. The cost object is the assembly department in a factory.

Question 7

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating fixed costs of the Computer Department to a user department such as Department A,which of the following formulas is used?
A) budgeted fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
B) budgeted fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)
C) actual fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
D) actual fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)

Accepted Answer

The formula for allocating fixed costs to Department A would use the budgeted fixed cost (as it is a predetermined cost) and the budgeted hours to be used by Department A. Hence, choice A is the best option. Choice B uses actual hours used, which may not be representative of the planned usage, while choice C uses actual fixed cost, which may not reflect the planned allocation. Lastly, choice D uses actual hours used and actual fixed cost, which may lead to inaccurate allocation.

Question 8

If the vast majority of costs were directly traceable to cost objects,then cost allocation would be a minor issue.

Accepted Answer

If costs are directly traceable to cost objects, then there would be no or little need for cost allocation as the costs can be directly assigned to the cost object. Therefore, cost allocation would be a minor issue.

Question 9

Service department costs can be assigned to ________.
A) customers only
B) producing departments only
C) customers and producing departments
D) none of the above

Accepted Answer

Service department costs are meant to support producing departments in achieving their objectives. However, to determine the net profit made by the organization, these costs should be allocated to the appropriate department--customer, producing or both. Thus, costs can be assigned to customers and producing departments.

Question 10

For management purposes,managers trace and allocate the costs from value-chain functions to ________.
A) products only
B) customers only
C) products and customers
D) none of the above

Accepted Answer

Managers trace and allocate costs from value-chain functions to products and customers, as this helps in determining the profitability and identifying areas for cost reduction or pricing strategies for different customer segments. Allocating costs only to products or customers alone may not provide an accurate picture of the overall costs and profitability of the business. Allocating costs to none of the above would not serve any management purpose.

Question 11

Service departments in organizations exist to support ________.
A) other service departments and customers only
B) producing departments and suppliers only
C) other service departments, producing departments and customers
D) producing departments and customers only

Accepted Answer

Service departments exist to support both producing departments (which are responsible for creating the organization's products or services) and customers (who use the organization's products or services). Additionally, service departments may also support other service departments within the organization. Therefore, the best choice is C, which includes all three options.

Question 12

For costs that accountants cannot directly trace to products or services,accountants use ________ or ________.
A) ABC methods; payback method
B) cost-budgeting methods; ignore remaining costs
C) sensitivity analysis; financial planning models
D) cost-allocation methods; leave costs unallocated

Accepted Answer

When costs cannot be directly traced to products or services, accountants use cost-allocation methods to distribute the costs among different products or services. Leaving costs unallocated is not an option as it can lead to inaccurate product costs, and the other options listed are not applicable for this scenario.

Question 13

Managers allocate the salaries of human resource personnel to a producing department.The salaries are considered to be a(n)________ for the producing department and a(n)________ for the human resource department.
A) direct cost; indirect cost
B) indirect cost; direct cost
C) indirect cost; indirect cost
D) traceable cost; common cost

Accepted Answer

Salaries of human resource personnel are an indirect cost to the producing department because they are not directly tied to the production process, but are necessary for the department to function. On the other hand, these salaries are a direct cost for the human resource department because they are directly tied to the department's functioning.

Question 14

Examples of service departments in a hospital include the housekeeping and laundry departments.

Accepted Answer

Service departments in a hospital can include departments like housekeeping, maintenance, laundry, and security, which provide support services to the clinical departments.

Question 15

The logical cost driver for building rent cost of $10,000 is square feet.The cost object is the assembly department in a factory.

Accepted Answer

The logical cost driver for building rent cost of $10,000 is typically the square footage of the building, as this is directly related to the amount of space being rented. In this case, the cost object is the assembly department in a factory, which may occupy a certain amount of square footage within the building. Therefore, the square footage would be the appropriate cost driver to allocate the building rent cost to the assembly department.

Question 16

Managers trace ________ to service departments.Managers allocate ________ to service departments.
A) producing department costs; service department costs
B) producing department costs; producing department costs
C) direct costs; indirect costs
D) direct costs; producing department costs

Accepted Answer

Managers trace direct costs to service departments because these costs can be directly attributed to them. Indirect costs, which cannot be directly traced, are allocated to service departments.

Question 17

For external financial reporting,________ costs are assigned to products or services.
A) some production
B) all production
C) all value chain function
D) all production and some value chain function

Accepted Answer

For external financial reporting, generally accepted accounting principles (GAAP) require that all production costs be assigned to products or services. This includes direct materials, direct labor, and manufacturing overhead.

Question 18

Companies must assign all value chain costs to products for internal financial reports.

Accepted Answer

Companies have discretion in how they allocate value chain costs for internal reporting purposes, and not all costs must be directly assigned to products.

Question 19

Why do managers assign the direct costs of service departments to customers instead of the producing department?
A) for ease of calculation
B) to reduce bookkeeping costs
C) to prevent cost distortions due to the use of a cost allocation base by the producing department that has little relationship to the cause of customer service costs
D) because customers are the only cost objects with direct costs

Accepted Answer

Assigning the direct costs of service departments to customers prevents cost distortions due to the use of a cost allocation base by the producing department that has little relationship to the cause of customer service costs. This method ensures that the customers who actually receive the services are the ones bearing the costs associated with those services, rather than potentially penalizing a particular producing department for using a service more frequently than others.

Question 20

Companies must assign all production costs and only production costs to products for external financial reporting purposes.

Accepted Answer

This is a requirement of generally accepted accounting principles (GAAP) for external financial reporting. All costs incurred in the production process must be assigned to products in order to accurately determine the cost of goods sold and gross profit. Non-production costs, such as administrative and selling expenses, are not included in the cost of goods sold and are instead reported separately on the income statement.

Quiz 12: Cost Allocation

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating variable costs of the Computer Department to a user department,which of the following formulas is used?

Which of the following departments is NOT a service department?

Some service department activities support customers rather than the production process.These costs are traced directly to instead of .

When allocating service department costs to producing departments,which of the following guidelines is NOT followed?

Why do companies develop cost allocation methods to assign service department costs to producing departments?

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment.The cost object is the assembly department in a factory.

If the vast majority of costs were directly traceable to cost objects,then cost allocation would be a minor issue.

Service department costs can be assigned to ________.

For management purposes,managers trace and allocate the costs from value-chain functions to ________.

Service departments in organizations exist to support ________.

For costs that accountants cannot directly trace to products or services,accountants use or .

Managers allocate the salaries of human resource personnel to a producing department.The salaries are considered to be a(n) for the producing department and a(n) for the human resource department.

Examples of service departments in a hospital include the housekeeping and laundry departments.

The logical cost driver for building rent cost of $10,000 is square feet.The cost object is the assembly department in a factory.

Managers trace to service departments.Managers allocate to service departments.

For external financial reporting,________ costs are assigned to products or services.

Companies must assign all value chain costs to products for internal financial reports.

Why do managers assign the direct costs of service departments to customers instead of the producing department?

Companies must assign all production costs and only production costs to products for external financial reporting purposes.

Quiz 12: Cost Allocation

The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating variable costs of the Computer Department to a user department,which of the following formulas is used?

Which of the following departments is NOT a service department?

Some service department activities support customers rather than the production process.These costs are traced directly to ________ instead of ________.

When allocating service department costs to producing departments,which of the following guidelines is NOT followed?

Why do companies develop cost allocation methods to assign service department costs to producing departments?

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment.The cost object is the assembly department in a factory.

If the vast majority of costs were directly traceable to cost objects,then cost allocation would be a minor issue.

Service department costs can be assigned to ________.

For management purposes,managers trace and allocate the costs from value-chain functions to ________.

Service departments in organizations exist to support ________.

For costs that accountants cannot directly trace to products or services,accountants use ________ or ________.

Managers allocate the salaries of human resource personnel to a producing department.The salaries are considered to be a(n) ________ for the producing department and a(n) ________ for the human resource department.

Examples of service departments in a hospital include the housekeeping and laundry departments.

The logical cost driver for building rent cost of $10,000 is square feet.The cost object is the assembly department in a factory.

Managers trace ________ to service departments.Managers allocate ________ to service departments.

For external financial reporting,________ costs are assigned to products or services.

Companies must assign all value chain costs to products for internal financial reports.

Why do managers assign the direct costs of service departments to customers instead of the producing department?

Companies must assign all production costs and only production costs to products for external financial reporting purposes.

Some service department activities support customers rather than the production process.These costs are traced directly to instead of .

For costs that accountants cannot directly trace to products or services,accountants use or .

Managers allocate the salaries of human resource personnel to a producing department.The salaries are considered to be a(n) for the producing department and a(n) for the human resource department.

Managers trace to service departments.Managers allocate to service departments.