Question 1

The formula for calculating a predetermined indirect cost rate is:
A) actual indirect costs/actual usage of the cost driver
B) budgeted indirect costs/actual usage of the cost driver
C) budgeted indirect costs/budgeted usage of the cost driver
D) actual indirect costs/budgeted usage of the cost driver

Accepted Answer

The formula for calculating a predetermined indirect cost rate is budgeted indirect costs divided by budgeted usage of the cost driver. This allows organizations to estimate the indirect costs per unit of the cost driver in advance, facilitating more accurate budgeting and pricing decisions.

Question 2

Paws Pet Resort and Spa is located in Christchurch. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is the total cost of the grooming product line, which of the following is a direct cost?
A) Front office staff salaries
B) Labour cost of employees who groom pets
C) Public liability insurance.
D) Rent on the premises.

Accepted Answer

The labor cost of employees who groom pets is a direct cost to the grooming product line because it can be directly traced to that specific service.

Question 3

Which of the following is least likely to be a cost object for a car manufacturer:
A) Human Resources Department
B) Assembly Division
C) Gordon Lee - a part time employee in the cafeteria.
D) Charlie's Car Company - a long term customer.

Accepted Answer

A cost object is anything for which a separate measurement of costs is desired. It can be a product, a department, a project, etc. Human Resources Department (A) and Assembly Division (B) are typical cost objects in manufacturing as costs are often allocated to these units. Charlie's Car Company (D), being a customer, could also be considered a cost object if the manufacturer tracks costs or revenues associated with specific customers. However, an individual part-time employee like Gordon Lee (C) in the cafeteria is less likely to be a cost object because costs are not typically tracked at the individual employee level for operational or financial analysis purposes.

Question 4

Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?
A) accounts
B) security
C) computing departments
D) laminating department

Accepted Answer

The laminating department is directly involved in the production process, unlike the other departments which provide support services.

Question 5

If the cost object is the production department in a large manufacturing firm which of these would be a direct cost?
A) The raw materials cost of the products produced
B) A share of the building space occupied based on percentage of floor space used
C) The payroll department manager's yearly bonus payment
D) Research and development costs for future products.

Accepted Answer

The raw materials cost of the products produced is a direct cost to the production department because it is directly traceable to the products being manufactured in that department.

Question 6

Smart Choices allocates advertising expenses to its two departments, Lifestyle and Storage Solutions, using sales as the cost driver. For the current year the sales for Lifestyle are estimated to be $450,000 and for department Storage Solutions $900,000 and total advertising expenses are budgeted at $110,000. The indirect cost rate is:
A) Lifestyle: $0.24 per sales dollar: Storage Solutions: $0.12 per sales dollar
B) $.036 per sales dollar
C) $.081 per sales dollar
D) $12.27 per sales dollar

Accepted Answer

The answer of Smart Choices allocates advertising expenses to its...

Question 7

The reason for allocating indirect costs is:
A) to set product prices
B) to comply with external reporting requirements
C) to help with making decisions about which products to produce
D) all of the above

Accepted Answer

Allocating indirect costs helps in setting product prices by ensuring that all costs are covered, it is necessary for external reporting requirements to accurately reflect the cost of production, and it aids in making decisions about which products to produce by showing the full cost associated with each product.

Question 8

In relation to product costing the indirect cost rate is:
A) the rate used to assign indirect costs to the cost object
B) added to direct costs to calculate the full product cost
C) the input or activity that causes changes in total costs for a cost object
D) the method used to allocate the costs of each support department to the operating departments

Accepted Answer

The indirect cost rate is used to assign indirect costs to a cost object, such as a product or service, to determine its total cost.

Question 9

Which of these statements concerning the determination of the full cost of a cost object is not true?
A) direct costs are traced via source documentation
B) overheads are included
C) indirect costs are allocated via the use of a cost driver
D) full cost includes only manufacturing costs

Accepted Answer

Full cost includes not only manufacturing costs but also other costs such as administrative and selling expenses. The statement that full cost includes only manufacturing costs is not true.

Question 10

Which of these is an example of an indirect cost if Department M is the cost object?
A) Insurance on the organisation's building, part of which is occupied by Department M
B) Rent on the organisation's building, part of which is occupied by Department M
C) Commission paid to the sales persons in Department M
D) A and B

Accepted Answer

Indirect costs are those costs that are not directly traceable to a specific cost object, such as a department, but are incurred for the common benefit of multiple cost objects. Insurance and rent for the organization's building, parts of which are occupied by Department M, are examples of indirect costs because they benefit the entire organization and cannot be directly attributed to Department M alone. In contrast, commissions paid to salespersons in Department M are direct costs because they can be directly traced to the department's activities.

Question 11

If the cost object is the cosmetics department of a large department store which of the following is a direct cost?
A) Advertising costs for the store's annual stock take sale.
B) Brand specific cosmetic product training.
C) The payroll department manager's yearly bonus payment
D) Security staff wages for the store.

Accepted Answer

Brand specific cosmetic product training is a direct cost to the cosmetics department because it is directly associated with the operations and activities of that specific department, unlike the other options which are more general costs for the entire store.

Question 12

Smart Choices allocates indirect labour costs to its two departments, Lifestyle and Storage Solutions using number of employees per department as the cost driver. For the current year the number of employees in department Lifestyle are estimated to be 50 and for Storage Solutions department 30 and total indirect labour costs for the departments are budgeted at $1,400,000. The amount allocated to the departments are:
A) Lifestyle $48,000: Storage Solutions $80,000
B) Lifestyle $875,000: Storage Solutions $525,000
C) Lifestyle $875,000: Storage Solutions $80,000
D) Lifestyle $525,000: Storage Solutions $875,000

Accepted Answer

The total number of employees is 80 (50 Lifestyle + 30 Storage Solutions). The cost per employee is $1,400,000 / 80 = $17,500. Therefore, Lifestyle (50 employees) would be allocated $875,000 (50 * $17,500) and Storage Solutions (30 employees) would be allocated $525,000 (30 * $17,500).

Question 13

Jones Plumbing estimates that its overhead costs for the year will be $800,000 and it has decided to use direct labour hours as the cost driver. Its mark-up is 20% on cost. If a job for Martin Z used $800 of direct materials and 5 labour hours at $50 per hour how much will Jones Plumbing charge Martin Z?
A) $960
B) $800
C) $2,460
D) cannot be calculated from the information given

Accepted Answer

The answer of Jones Plumbing estimates that its overhead costs...

Question 14

Which of these cost drivers is not a criteria for allocating costs?
A) benefits received
B) fairness
C) standardisation
D) behavioural

Accepted Answer

Standardisation is not a criteria for allocating costs. Cost allocation is typically based on factors like benefits received, fairness, and the potential behavioural effects, rather than on standardisation, which relates more to uniformity in procedures or products.

Question 15

Mollie's Lollie Manufacturer has budged total overhead to be $269 500 and the expected cost driver is 55 000 machine hours. Last year actual machine hours was 50 000. The predetermined indirect cost rate is.
A) $5.39
B) $1.10
C) $.20
D) $4.90

Accepted Answer

The predetermined indirect cost rate is calculated by dividing the total budgeted overhead by the expected cost driver. So, $269,500 / 55,000 machine hours = $4.90 per machine hour.

Question 16

The distinction between direct costs and indirect costs depends on their traceability to:
A) an activity
B) a manufacturing operation
C) a cost object
D) a product

Accepted Answer

Direct costs can be directly traced to a cost object, such as a product, project, or department, whereas indirect costs cannot be directly traced to a single cost object and are often allocated based on some method of apportionment.

Question 17

The cost driver that is a volume based cost driver is:
A) number of units
B) number of set-ups
C) number of employees
D) all are volume based cost drivers

Accepted Answer

The number of units is a volume-based cost driver because it directly correlates with the volume of production or services provided. The more units produced, the higher the costs associated with production. Choices B and C are not directly tied to volume in the same way.

Question 18

Paws Pet Resort and Spa is located in Christchurch. The company employs three pet attendants, four pet groomers and two front office staff who book appointments and keep records. The spa provides a range of services for dogs and cats including boarding, grooming, and obedience training. The grooming area includes a small retail section that carries dog and cat food, pet supplies, and toys. If the cost object is cost per day of boarding, which of the following is an indirect cost?
A) Pet food
B) Front office staff salaries
C) Cleaning costs for the kennels.
D) Maintenance on the kennels.

Accepted Answer

Front office staff salaries are considered an indirect cost in relation to the cost per day of boarding because these costs are not directly traceable to the boarding of a specific pet. They are necessary for the overall operation but do not directly impact the cost of boarding an individual pet.

Question 19

In determining the amount of indirect costs to be allocated to the cost object the first step is:
A) to develop a cost allocation formula
B) to develop a predetermined cost rate
C) to select a cost driver
D) to decide on the number of cost pools

Accepted Answer

The answer of In determining the amount of indirect costs...

Question 20

Indirect costs are:
A) costs that it is impossible to trace to a cost object
B) costs that cannot be traced to a cost object in an economic manner
C) also known as overhead costs.
D) B and C

Accepted Answer

Indirect costs are costs that cannot be traced to a cost object in an economically feasible way and are also known as overhead costs.

Quiz 3: A Costing Framework and Cost Allocation

The formula for calculating a predetermined indirect cost rate is:

Which of the following is least likely to be a cost object for a car manufacturer:

Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?

If the cost object is the production department in a large manufacturing firm which of these would be a direct cost?

The reason for allocating indirect costs is:

In relation to product costing the indirect cost rate is:

Which of these statements concerning the determination of the full cost of a cost object is not true?

Which of these is an example of an indirect cost if Department M is the cost object?

If the cost object is the cosmetics department of a large department store which of the following is a direct cost?

Which of these cost drivers is not a criteria for allocating costs?

Mollie's Lollie Manufacturer has budged total overhead to be $269 500 and the expected cost driver is 55 000 machine hours. Last year actual machine hours was 50 000. The predetermined indirect cost rate is.

The distinction between direct costs and indirect costs depends on their traceability to:

The cost driver that is a volume based cost driver is:

In determining the amount of indirect costs to be allocated to the cost object the first step is:

Indirect costs are: