Question 1

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: Total Miles Traveled:
$$\begin{array} { l r } 
\text { Western Division } & 800,000 \text { miles } \
\text { Pacific Division } & 1,200,000 \text { miles }
\end{array}$$ 
 The amount of track improvement cost that should be allocated to the Western Division is: (Do not round your intermediate calculations.)
A) $4,000,000.
B) $3,200,000.
C) $800,000.
D) $5,333,333.

Accepted Answer

The total miles traveled by both divisions is 800,000 + 1,200,000 = 2,000,000 miles. The Western Division traveled 800,000 of those miles. To find the portion of the $8,000,000 investment that should be allocated to the Western Division, calculate $800,000 / 2,000,000 = 0.4$ or 40% of $8,000,000, which is $3,200,000.

Question 2

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $360,000 a year.It is estimated that these employees move 600,000 pounds of material per year.If 60,000 pounds are moved in March,how much of the material handling cost should be assigned to products made in March? (Do not round intermediate calculations.)
A) $36,000
B) $24,000
C) $50,000
D) $38,000

Accepted Answer

The material handling cost assigned to products made in March is $36,000. This is calculated by multiplying the total material handling cost by the ratio of the pounds of material moved in March to the total pounds of material moved in a year.

Question 3

Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit.The estimated production activity for the upcoming year is 1,000 units.If the company desires to earn a gross profit of $50 per unit,the sales price per unit would be which of the following amounts?
A) $175
B) $195
C) $415
D) $290

Accepted Answer

The answer of Jessup Company expects to incur overhead costs...

Question 4

Selection of a cost driver depends on:
A) The availability of information for both the cost and the potential cost driver.
B) A cause-and-effect relationship between the cost driver and the cost.
C) Judgment of management.
D) All of the answers are correct.

Accepted Answer

All of the answers are correct. The selection of a cost driver should be based on the availability of information for both the cost and the potential cost driver, the existence of a cause-and-effect relationship between the cost driver and the cost, and the judgment of management. Therefore, all of the options are valid criteria for selecting a cost driver.

Question 5

Which of the following is not a step in allocating indirect costs to cost objects?
A) Multiply the allocation rate by the weight of the cost driver.
B) Trace direct costs to individual cost pools.
C) Compute an allocation rate by dividing the total cost to be allocated by the total cost driver volume.
D) All of the answers are steps in allocating indirect costs.

Accepted Answer

Tracing direct costs to individual cost pools is not a step in allocating indirect costs. Direct costs are already assigned directly to the cost object, while indirect costs require allocation. The other three steps listed (calculating an allocation rate, multiplying the rate by the weight of the cost driver, and allocating the indirect costs to the cost object) are all part of the process of assigning indirect costs to cost objects.

Question 6

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet.Which of the following would not be a rational base for allocating overhead costs to the warehouses?
A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses

Accepted Answer

The number of warehouses completed is not a rational base for allocating overhead costs because it does not directly correlate with the resources consumed or the complexity of each project. Overhead costs are more accurately allocated based on factors that reflect the amount of resources used, such as labor hours, direct material costs, or the square footage of the warehouses, rather than simply the count of warehouses completed.

Question 7

Bank's Department Store has three departments: Men's,Women's and Children's.The store incurred $50,000 of store rental costs during the current year.The departments identified the following cost drivers: $$\begin{array} { l r r r } 
& \text { Men's } & \text { Women's } & \text { Children's } \
\text { Labor dollars } & \$ 530,000 & \$ 775,000 & \$ 2 4 0 , 0 0 0 \
\text { Number of employees } & 10 & 20 & 4 \
\text { Square footage } & 3,000 & 8,000 & 1,000 \
\text { Number of sales transactions } & 300,000 & 900,000 & 90,000
\end{array}$$ Using the most appropriate cost driver,how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations.Round final answer to the nearest dollar.)
A) $33,333
B) $29,412
C) $25,081
D) $34,884

Accepted Answer

The most appropriate cost driver for allocating rental costs is the number of sales transactions. The Women's Department had 900,000 sales transactions, which is 60% of the total sales transactions (900,000 / 1,500,000). Therefore, the Women's Department should be allocated 60% of the rental costs ($50,000 * 0.60 = $30,000).

Question 8

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites.A new truck that was purchased for a cost of $120,000 at the beginning of the year was expected to deliver 200,000 tons over its useful life.The following is a breakdown of the tons delivered during the year to each construction site: $$\begin{array} { l c c c c } 
\text { Construction Sites: } & \text { A } & \text { B } & \text { C } & \text { D } \
\text { Tons Delivered: } & 2,000 & 3,500 & 4,000 & 1,500
\end{array}$$ 
How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations.)
A) $21,818
B) $30,000
C) $2,000
D) None of the answers are correct.

Accepted Answer

The total tons delivered is 11,000 (2,000 + 3,500 + 4,000 + 1,500). The cost per ton is $120,000 / 200,000 tons = $0.60 per ton. For Site A, the depreciation is 2,000 tons * $0.60/ton = $1,200, which is not listed among the options provided.

Question 9

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 include both direct and indirect costs. Direct costs are typically traceable to a specific cost object or product, while indirect costs are not easily traceable and may need to be allocated to cost objects using an allocation base. However, both types of costs can be relevant to decision-making and should be considered in cost analysis. Choice A is incorrect because the allocation base is used to allocate indirect costs, not to determine whether a cost is direct or indirect. Choice B is incorrect because a cost can be classified as both direct and indirect, depending on the level of analysis. Choice D is incorrect because direct costs can exhibit both variable and fixed behavior patterns.

Question 10

State University's College of Business is divided into three departments,accounting,marketing,and management.Relevant information for each department is provided below: $$\begin{array} { l c c c } 
\text { Cost Driver } & \text { Accounting } & \text { Marketing } & \text { Management } \
\text { Number of students } & 700 & 400 & 200 \
\text { Number of classes per semester } & 32 & 18 & 14 \
\text { Number of faculty } & 10 & 12 & 5
\end{array}$$ 
The Dean of the College of Business is trying to assign funds from the operating budget to the three departments.Assuming that the chair of each department is trying to attain the highest funding possible for his/her department,which of the following most accurately describes the allocation base that each chair will favor?
A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty.
B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty.
C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester.
D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

Accepted Answer

The chair of each department would favor the allocation base that makes their department appear largest, as this could justify receiving more funds. The Management department has the highest number of classes relative to its size, and the Marketing department has the most faculty members.

Question 11

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 products being overcosted because the overhead allocated per unit would be higher than it should have been based on the actual production volume.

Question 12

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 the units made in January, we need to consider three costs: direct material cost, direct labor cost, and overhead cost.

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

Total direct cost per unit = $50 ($20 + $30)

Total cost of units made in January = Total direct cost per unit x Number of units produced in January

= $50 x 600 units = $30,000

Now, we need to also consider the overhead cost. The overhead cost is applied based on the expected overhead cost and the number of units expected to be produced in total for the year.

Overhead cost per unit = Expected overhead cost / Expected number of units

Overhead cost per unit = $54,000 / 6,000 units = $9

Total cost per unit = Direct cost per unit + Overhead cost per unit

Total cost per unit = $50 + $9 = $59

Total cost of units made in January (considering overhead cost) = Total cost per unit x Number of units produced in January

= $59 x 600 units = $35,400

Therefore, the correct answer is C, $35,400.

Question 13

Sheddon Industries produces two products.The products' identified costs are as follows: $\begin{array}{lrr}
&\text { Product A }&\text { Product B }\
  \text {  Direct materials} &\$20,000&\$15,000\
 \text {  Direct labor} &12,000&24,000\
\end{array}$
 The company's overhead costs of $108,000 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) $36,000
B) $111,000
C) $68,000
D) None of the answers are correct.

Accepted Answer

To allocate the overhead costs, we need to first calculate the total labor cost. If we assume that labor is the only driver for overhead costs, then we can use the proportion of labor cost for each product to allocate the overhead costs.

Total labor cost = (4000 units of A x $5/unit) + (5000 units of B x $7/unit) 
Total labor cost = $20,000 + $35,000 
Total labor cost = $55,000

Proportion of labor cost for Product A = ($20,000 / $55,000) = 0.3636
Proportion of labor cost for Product B = ($35,000 / $55,000) = 0.6364

Allocated overhead cost for Product A = $108,000 x 0.3636 = $39,273.60

Therefore, the amount of production costs assigned to Product A is $39,273.60. None of the given answer choices are correct, the closest answer choice is C which is $68,000.

Question 14

Which of the following statements is false?
A) Both direct and indirect costs can be assigned to a cost object.
B) Cost drivers are often selected based on the availability of information.
C) Volume measures are good drivers for fixed overhead costs.
D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.

Accepted Answer

Volume measures are not good drivers for fixed overhead costs as fixed costs are not affected by changes in volume. Instead, activity-based drivers should be used for allocating fixed overhead costs.

Question 15

During the current year,Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet.One home was completed each month during January,February,and March.Three homes were completed during April and May.Two homes were completed during each of the months from June through December.Based upon this information,the most appropriate allocation base (i.e.,cost driver)for the assignment of indirect overhead costs to each house would be the:
A) Number of homes built during the month.
B) Number of months in the year.
C) Number of homes built during the year.
D) Size of the home.

Accepted Answer

The size of the home is the most appropriate allocation base for assigning indirect overhead costs because it directly correlates with the complexity and resources required for each project. Larger homes likely require more materials, labor, and time, which should be reflected in the allocation of overhead costs. Choices A, B, and C do not account for the variation in size and complexity between the homes.

Question 16

The process of dividing a total cost into parts and assigning it to cost objects is known as:
A) cost tracing.
B) cost division.
C) cost allocation.
D) None of the answers are correct.

Accepted Answer

Cost allocation is the process of dividing a total cost into parts and assigning it to cost objects. Cost tracing involves identifying and assigning direct costs to a specific cost object, and cost division is not a commonly used term in cost accounting.

Question 17

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 overhead costs are allocated based on labor hours. Since a standard tent requires 4 hours of labor and a deluxe tent requires 10 hours of labor, the total overhead costs of $52,000 should be allocated based on the proportion of labor hours used for each type of tent.

For standard tents: 
$52,000 x 2,000 standard tents / (2,000 standard tents x 4 labor hours per tent) = $16 of overhead cost per standard tent

For deluxe tents: 
$52,000 x 500 deluxe tents / (500 deluxe tents x 10 labor hours per tent) = $40 of overhead cost per deluxe tent

Therefore, 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 18

Sheddon Industries produces two products.The products' identified costs are as follows: $\begin{array}{lrr}
&\text { Product A }&\text { Product B }\
  \text {  Direct materials} &\$20,000&\$15,000\
 \text {  Direct labor} &12,000&24,000\
\end{array}$
  The company's overhead costs of $108,000 are allocated based on direct labor cost.Assume 4,000 units of product A and 5,000 units of Product B are produced.What is the cost per unit for product B? (Do not round intermediate calculations.)
A) $7.80
B) $22.20
C) $16.80
D) None of the answers are correct.

Accepted Answer

The overhead cost per unit for product B is $108,000 / (12,000 + 24,000) * 24,000 / 5,000 = $7.80. The total cost per unit for product B is $15,000 / 5,000 + $24,000 / 5,000 + $7.80 = $22.20.

Question 19

For a manufacturer,measures of volume may include:
A) Number of units produced.
B) Number of square feet occupied.
C) Amount of direct materials used in production.
D) Both number of units produced and amount of direct materials used in production are correct.

Accepted Answer

The number of units produced is a direct measure of the volume of the manufacturer's output. Similarly, the amount of direct materials used in production is also a direct measure of the manufacturing volume as more output will require more raw materials. The number of square feet occupied is not necessarily a direct measure of volume and may not always be a good indicator of output levels.

Question 20

Marsden Company has three departments occupying the following amount of floor space: $\begin{array}{ll}
\text { Department 1 } & 15,000 \mathrm{sq} . \mathrm{ft} \
\text { Department } 2 & 10,000 \mathrm{sq} . \mathrm{ft} \
\text { Department } 3 & 25,000 \mathrm{sq} . \mathrm{ft}
\end{array}$

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 * 0.5 = $100,000.

Quiz 4: Cost Accumulation,tracing,and Allocation

Selection of a cost driver depends on:

Which of the following is not a step in allocating indirect costs to cost objects?

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet.Which of the following would not be a rational base for allocating overhead costs to the warehouses?

Select the correct statement from the following.

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:

Which of the following statements is false?

The process of dividing a total cost into parts and assigning it to cost objects is known as:

For a manufacturer,measures of volume may include: