Question 1

The three major corporate cost categories are treasury, human resource management, and corporate administration costs.

Accepted Answer

Treasury, human resource management, and corporate administration costs are the three major corporate cost categories.

Question 2

Answer the following questions using the information below:
The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $10,000,000 bond issuance, the Electric Mixer Division used $7,000,000 and the Electric Lamp Division used $3,000,000 for expansion. Interest costs on the bond totaled $750,000 for the year.
-The above interest costs would be considered a(n):
A)output unit-level cost
B)facility-sustaining cost
C)product-sustaining cost
D)batch-level cost

Accepted Answer

The interest costs on the bond issuance are related to the entire product line of both Electric Mixer Division and Electric Lamp Division. Therefore, it is a product-sustaining cost.

Question 3

Identifying homogeneous cost pools:
A)requires judgment and should be reevaluated on a regular basis
B)should include the input of management
C)should include a cost-benefit analysis
D)All of these answers are correct.

Accepted Answer

Identifying homogeneous cost pools requires judgment and should be reevaluated on a regular basis, as well as including the input of management and a cost-benefit analysis. Therefore, all of these answers are correct.

Question 4

Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled.

Accepted Answer

By allocating all corporate costs, division managers are forced to take a closer look at how these costs are planned and controlled, which can motivate them to find ways to reduce these costs and improve overall efficiency.

Question 5

If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

Accepted Answer

Homogeneous cost pools are made up of activities or costs that are similar in nature and can be grouped together. Since the costs in the pool have similar cost drivers and allocation bases, the allocation of costs using the pool will be the same as if the costs were allocated individually. Therefore, the statement is true.

Question 6

Once a cost pool has been established, it should NOT need to be revisited or revised.

Accepted Answer

Cost pools may need to be revisited or revised if there are changes in the allocation base or if new costs are identified that should be included in the pool.

Question 7

An individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object.

Accepted Answer

This is possible if the cost item is incurred for multiple cost objects or activities, and can be directly traced to one but allocated or apportioned to others.

Question 8

Corporate administrative costs allocated to a division cost pool are most likely to be:
A)output unit-level costs
B)facility-sustaining costs
C)product-sustaining costs
D)batch-level costs

Accepted Answer

Corporate administrative costs are usually facility-sustaining costs as they are not directly related to the production of a specific product or batch, but rather to the overall management and administration of the entire organization or facility. These costs would not be directly traced to individual output units or batches, but would instead be allocated to a cost pool for a specific division.

Question 9

Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.

Accepted Answer

Costs in homogeneous cost pools have a similar or cause-and-effect relationship with the allocation base, which means they are similar in nature and can be allocated using the same cost driver. This helps in allocating the costs more accurately and efficiently.

Question 10

Answer the following questions using the information below:
The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $10,000,000 bond issuance, the Electric Mixer Division used $7,000,000 and the Electric Lamp Division used $3,000,000 for expansion. Interest costs on the bond totaled $750,000 for the year.
-What amount of interest costs should be allocated to the Electric Lamp Division?
A)$225,000
B)$525,,000
C)$2,100,000
D)$3,000,000

Accepted Answer

The allocation of interest costs to the Electric Lamp Division can be calculated by taking the proportion of the amount borrowed by the Lamp division to the amount borrowed by both divisions combined.

Proportion of amount borrowed by Lamp division = $3,000,000 / $10,000,000 = 0.3

Therefore, the interest costs allocated to the Lamp division would be:

Interest costs allocated to Lamp division = Proportion of amount borrowed by Lamp division x Total interest costs

= 0.3 x $750,000

= $225,000

Since option A is the only one that matches this calculation, it is the correct choice.

Question 11

Answer the following questions using the information below:
The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $10,000,000 bond issuance, the Electric Mixer Division used $7,000,000 and the Electric Lamp Division used $3,000,000 for expansion. Interest costs on the bond totaled $750,000 for the year.
-What amount of interest costs should be allocated to the Electric Mixer Division?
A)$225,000
B)$525,000
C)$2,100,000
D)$7,000,000

Accepted Answer

The proportion of bond issuance used by Electric Mixer Division is 7,000,000/10,000,000 = 7/10 or 70%. The proportion used by Electric Lamp Division is 3,000,000/10,000,000 = 3/10 or 30%. Therefore, the interest cost allocated to Electric Mixer Division would be 70% of $750,000, which is $525,000.

Question 12

Homogeneous cost pools lead to:
A)more accurate costs of a given cost object
B)more resources being assigned to that cost object
C)the need for more cost drivers
D)Both A and C are correct.

Accepted Answer

The answer of Homogeneous cost pools lead to:
A)more accurate costs...

Question 13

To allocate corporate costs to divisions, the allocation base used should:
A)be an output unit-level base
B)have the best cause-and-effect relationship with the costs
C)combine administrative costs and human resource management costs
D)allocate the full costs

Accepted Answer

The allocation base used should have the best cause-and-effect relationship with the costs. This ensures that the costs are allocated to the divisions that are most responsible for incurring them, and minimizes the risk of unfairly burdening some divisions with costs that should be borne by others. Allocating the full costs (D) is not always necessary or appropriate, and combining administrative costs and human resource management costs (C) may not provide sufficient granularity for accurate cost allocation. Using an output unit-level base (A) could work in some cases, but it may not be the best choice for all types of costs or divisions.

Question 14

When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

Accepted Answer

When there is a lesser degree of homogeneity, more cost pools are required to accurately explain the use of company resources. This is because different cost drivers will affect different activities within the organization, and therefore, more cost pools are needed to accurately allocate costs.

Question 15

The greater the degree of homogeneity, the:
A)greater the number of needed cost pools
B)fewer the number of needed cost pools
C)less accurate the costs of a particular cost object
D)greater the variety of cause-and-effect relationships with the cost driver

Accepted Answer

The greater the degree of homogeneity, the fewer the number of needed cost pools because costs are more similar and can be grouped together into larger categories for easier allocation.

Question 16

To manage setup costs, a corporation might focus on the:
A)number of setup-hours
B)number of units included in each production run
C)batch-level costs incurred per setup-hour
D)Both A and C are correct.

Accepted Answer

To manage setup costs, it is important to consider both the number of setup-hours and the batch-level costs incurred per setup-hour. By reducing the number of setup-hours required for each production run and improving the efficiency of setup tasks, the company can lower its overall setup costs. Additionally, by analyzing and potentially reducing the batch-level costs associated with setup tasks, such as equipment or material costs, the company can further manage its setup expenses. Therefore, both options A and C are correct and should be considered in managing setup costs.

Question 17

Companies that want to calculate the full cost of products must allocate all corporate costs to indirect-cost pools of divisions.

Accepted Answer

This statement is true in the context of activity-based costing (ABC), as it involves allocating all corporate costs to indirect-cost pools of divisions in order to calculate the full cost of products. However, in traditional costing systems, only direct costs are allocated to products, and indirect costs may be allocated based on a predetermined rate or a single cost pool.

Question 18

When individual activities within a cost pool have a similar relationship with the cost driver, those costs:
A)need to be reallocated
B)need multiple cost drivers
C)are considered a homogeneous cost pool
D)are considered an allocated cost pool

Accepted Answer

A homogeneous cost pool refers to a group of individual activities that have a similar relationship with the cost driver. Since the costs within this pool have a consistent pattern in relation to the cost driver, they can be allocated using a single cost driver. Therefore, there is no need for reallocation or multiple cost drivers.

Question 19

Answer the following questions using the information below:
The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $10,000,000 bond issuance, the Electric Mixer Division used $7,000,000 and the Electric Lamp Division used $3,000,000 for expansion. Interest costs on the bond totaled $750,000 for the year.
-Which corporate costs should be allocated to divisions?
A)fixed costs only
B)variable costs only
C)neither fixed nor variable costs
D)both fixed and variable costs

Accepted Answer

Both fixed and variable costs should be allocated to divisions, as this will allow for accurate cost analysis and better decision-making. The interest costs on the bond are an example of a fixed cost that should be allocated to the divisions based on their respective use of the funds.

Question 20

Advances in information-gathering technology make it more likely that multiple cost-pool systems will pass the cost-benefit test.

Accepted Answer

Advances in information-gathering technology allow for more accurate and efficient data collection, which can lead to better allocation of costs in multiple cost-pool systems, making it more likely that they will pass the cost-benefit test.

Quiz 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

The three major corporate cost categories are treasury, human resource management, and corporate administration costs.

Identifying homogeneous cost pools:

Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled.

If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

Once a cost pool has been established, it should NOT need to be revisited or revised.

An individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object.

Corporate administrative costs allocated to a division cost pool are most likely to be:

Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.

Homogeneous cost pools lead to:

To allocate corporate costs to divisions, the allocation base used should:

When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

The greater the degree of homogeneity, the:

To manage setup costs, a corporation might focus on the:

Companies that want to calculate the full cost of products must allocate all corporate costs to indirect-cost pools of divisions.

When individual activities within a cost pool have a similar relationship with the cost driver, those costs:

Advances in information-gathering technology make it more likely that multiple cost-pool systems will pass the cost-benefit test.