Question 1

Airco Company is tempted to consider support department costs to be facility-level costs that do not need to be applied to products. Which of the following explains what is misguided about this approach?

Accepted Answer

Support department costs can vary significantly among products, depending on the level of support each product requires. Ignoring these costs can lead to inaccurate product costing by not accounting for the true resources consumed by each product.

Question 2

Which of the following is the easiest but least accurate of the commonly used methods for allocating support department costs to production departments?

Accepted Answer

The direct method is considered the easiest but least accurate method for allocating support department costs because it allocates costs directly to the production departments without considering the services provided between support departments.

Question 3

Support department costs are applied to products as a part of

Accepted Answer

Support department costs are typically allocated as part of overhead costs in manufacturing, as they are indirect costs that support the production process but are not directly traceable to specific units of product.

Question 4

A single plantwide overhead application rate

Accepted Answer

A single plantwide overhead application rate often uses only one cost driver for the entire plant, which can lead to inaccuracies in assigning overhead costs to products, especially if different products consume overhead activities in different proportions.

Question 5

Which of the following is a drawback in using a single plantwide rate to apply overhead to product costs?

Accepted Answer

A single plantwide overhead rate often uses one cost driver to allocate all overhead costs, which may not accurately reflect the consumption of overhead resources by different products, leading to potential cost distortion.

Question 6

Which of the following statements is true?

Accepted Answer

Support department cost allocations should be incorporated into a product costing system to ensure accurate product costs. This includes costs from departments that do not directly produce a product but provide essential support services, such as maintenance, which are necessary for production. Allocating these costs helps in accurately determining the total cost of producing a product.

Question 7

A key aspect to the multiple production department rate method for overhead application is

Accepted Answer

The multiple production department rate method involves assigning overhead costs to products based on the specific activities that occur in each production department. Therefore, it's crucial to choose an appropriate cost driver for each production department to accurately allocate these costs.

Question 8

Carolina, the accountant for Duke Manufacturing, tells her friend, Jacob, who works in customer service for Duke, that she is writing journal entries to transfer costs to products. Carolina is referring to the

Accepted Answer

The cost application process involves transferring costs to products, which is what Carolina is doing by writing journal entries.

Question 9

Which of the following is the most difficult but most accurate of the commonly used methods for allocating support department costs to production departments?

Accepted Answer

The reciprocal services method is the most difficult but most accurate of the commonly used methods for allocating support department costs to production departments because it fully accounts for the mutual services provided among all support departments.

Question 10

When multiple production department rates are used to apply overhead to products,

Accepted Answer

The answer of When multiple production department rates are used...

Question 11

Which of the following is not one of the methods used for applying overhead?

Accepted Answer

The single investment application rate is not a recognized method for applying overhead in cost accounting. The recognized methods include a single plantwide application rate, multiple production department rates, and the activity-based costing application method.

Question 12

Which of the following is not one of the commonly used methods for allocating support department costs to production departments?

Accepted Answer

The activity-based management method is not a method specifically used for allocating support department costs to production departments. Instead, it is a broader approach to identifying, analyzing, and managing business activities that drive costs and affect operational efficiency. The direct method, sequential method, and reciprocal services method are all specific approaches used for allocating support department costs.

Question 13

Juana, a managerial accountant, notes to her colleague that she is reviewing spreadsheets to determine overhead costs that need to be transferred to support and production departments. Juana is working on the process to

Accepted Answer

Distributing overhead costs involves assigning them to specific departments or cost centers based on a predetermined allocation method.

Question 14

Which of the following is the correct order for allocating overhead costs using activity-based costing?

Accepted Answer

The correct order for allocating overhead costs using activity-based costing is to first determine the overhead costs, then directly trace and distribute these costs to support and production activities, next allocate support activity costs to production activities, and finally apply the production activity costs to products. This sequence ensures that overhead costs are accurately assigned to products based on the activities they require.

Question 15

Which of the following is the main feature of support department costs?

Accepted Answer

Support department costs are considered indirect costs because they cannot be directly traced to a specific product or service but are necessary for the production process or service delivery.

Question 16

Which of the following explains why it is difficult to apply support department costs, such as janitorial services, to products?

Accepted Answer

Appropriate cost drivers for support department costs like janitorial services are challenging to determine because these costs do not directly correlate with the production volume or direct labor hours, making it hard to accurately allocate them to specific products.

Question 17

Which of the following is a true statement with regard to the terms used when referring to manufacturing costs and the transfer of these costs to departments and products?

Accepted Answer

Cost distribution refers to the process of allocating overhead costs to support and production departments.

Question 18

When activity-based costing is used to apply overhead to products, support department costs are referred to as

Accepted Answer

Support department costs are referred to as support activity costs in activity-based costing because these costs are associated with activities that support the production process but are not directly tied to a specific product.

Question 19

Miller Safety Equipment uses multiple production department rates to apply overhead to products. The company will allocate support department costs to production departments based on the amount of support activity

Accepted Answer

The correct approach for allocating support department costs to production departments is based on the amount of support activity used by each department. This ensures that the allocation is fair and reflects the actual consumption of support services by each production department.

Question 20

A key difference between using multiple production department rates and activity-based costing is

Accepted Answer

The multiple production department rate method allocates overhead costs to different production departments based on department-specific rates, while activity-based costing (ABC) allocates overhead costs to specific activities that drive costs, aiming for more accurate product costing by tracing costs more directly to the activities that cause them.

Quiz 19: Support Department and Joint Cost Allocation