Question 1

Why do managers prepare cost-hierarchy-based operating incomes statements?

Accepted Answer

The answer of Why do managers prepare cost-hierarchy-based operating incomes...

Question 2

The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach.

Accepted Answer

The benefits of implementing a more-complex cost allocation system are difficult to measure.

Question 3

To guide cost allocation decisions,the cause-and-effect criterion ________.
A)is used less frequently than the other criteria
B)is the primary criterion used in activity-based costing
C)considers fairness as a matter of judgment rather than an operational criterion
D)advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it

Accepted Answer

The cause-and-effect criterion is the primary criterion used in activity-based costing. It seeks to identify activities that cause costs and then allocates those costs to the cost objects that benefit from the activities. This ensures that costs are allocated in a more accurate and meaningful way, leading to better decision making.

Question 4

To guide cost allocation decisions,the benefits-received criterion ________.
A)generally uses the cost driver as the cost allocation base
B)advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it
C)is the primarily used criterion in activity-based costing
D)may use an allocation base of division revenues to allocate advertising costs

Accepted Answer

The benefits-received criterion may use an allocation base of division revenues to allocate advertising costs. The criterion advocates allocating costs based on the benefits a cost object receives, and in this case, the division with higher revenues would receive more of the benefits from advertising and therefore bear a larger share of the costs. Choices A and C are inaccurate, as the cost driver and activity-based costing are not necessarily linked to the benefits-received criterion. Choice B describes the ability-to-bear criterion, not the benefits-received criterion.

Question 5

A company sets up cost pools for indirect cost allocation.Management sees clear cause-and-effect relationships between the incurrence of costs and the chosen the cost-allocation base.What other common relationships or basis with a cost allocation base might management utilize to allocate costs?
A)R&D expenses
B)benefits -received
C)Capital investment in a related process
D)gross profit proportions

Accepted Answer

Benefits-received is a common basis for allocating costs, as it distributes costs based on the perceived benefit each department or product line receives from the incurred costs.

Question 6

When using the cause-and-effect criterion,cost drivers are selected as the cost allocation bases.

Accepted Answer

Cost drivers are selected as the cost allocation bases when using the cause-and-effect criterion because they are the factors that cause or influence costs to be incurred, and therefore provide a logical and objective basis for assigning costs to cost objects.

Question 7

Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers?
A)the fairness or equity criterion
B)the benefits-received criterion
C)the ability to bear criterion
D)the cause-and-effect criterion

Accepted Answer

The ability to bear criterion allocates costs based on the ability of a department or division to absorb those costs, rather than on their actual use or cause of the costs. This can lead to situations where more profitable or efficient departments end up subsidizing less profitable or efficient ones, as they are deemed to have a greater ability to bear the costs.

Question 8

Which of the following is true of corporate-sustaining costs?
A)are common to all individual customers
B)have a clear cause-and-effect relationship with several cost-allocation bases
C)should be allocated for decisions regarding reducing customer costs
D)evaluates the effectiveness of sales personnel

Accepted Answer

Corporate-sustaining costs are costs that are common to all individual customers, not directly attributable to any specific product or service, but necessary for the overall functioning of the corporation.

Question 9

Which of the following is a challenge to using cost-benefit criteria for allocating costs?
A)the costs of designing and implementing complex cost allocations are not readily apparent
B)the benefits of making better-informed pricing decisions are difficult to measure
C)cost systems are being simplified and fewer multiple cost-allocation bases are being used
D)the costs of collecting and processing information keep spiraling upward

Accepted Answer

The answer of Which of the following is a challenge...

Question 10

Under the cause and effect criterion,reasonableness is a matter of judgment rather than an operational
criterion.

Accepted Answer

Under the fairness or equity criterion,reasonableness is a matter of judgment rather than an operational criterion.

Question 11

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees,which of the following would be the best criteria?
A)the cause-and-effect and the ability-to bear criteria
B)the cause-and-effect and the benefits-received criteria
C)the benefits-received and the fairness criteria
D)the fairness and the ability-to-bear criteria

Accepted Answer

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, the best criteria to use are the cause-and-effect and the benefits-received criteria. The cause-and-effect criterion allocates costs based on the cost driver that causes the cost to be incurred. The benefits-received criterion allocates costs based on the degree of benefit received by the user. These criteria are best suited for providing information for economic decisions or motivating managers and employees. The ability-to-bear and fairness criteria are better suited for other purposes such as taxation or social welfare.

Question 12

Today,companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

Accepted Answer

Companies are moving toward more-detailed and more-complex cost allocations because today technology can capture these costs in a relatively inexpensive manner.

Question 13

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different ________.
A)contribution-margin ratios of products
B)distribution-channel costs
C)levels of cause-and-effect relationships
D)division-sustaining costs

Accepted Answer

A customer cost hierarchy categorizes costs based on the level of cause-and-effect relationships with customers. It groups costs into different cost pools such as order-processing, delivery, and technical-support costs, based on the activities that drive those costs. The goal is to understand the profitability of different customer segments and to identify the drivers of costs so that the company can take steps to reduce costs and improve profitability.

Question 14

Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?
A)the fairness or equity criterion
B)the ability to bear criterion
C)the cause-and-effect criterion
D)the benefits-received criterion

Accepted Answer

The ability to bear criterion has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs. This means that the cost allocation should be based on the ability of each division to bear the cost, which depends on their profitability.

Question 15

Briefly describe the four criteria used to guide cost-allocation decisions.

Accepted Answer

The answer of Briefly describe the four criteria used to...

Question 16

What might explain why some managers advocate fully allocating all costs,including corporate costs to distribution channels and to customers?
A)all costs are incurred to support sales of products to customers
B)division managers can influence and control corporate costs
C)distribution channel managers can control corporate costs
D)all costs need to be considered to conduct adequate variance analysis

Accepted Answer

Advocating for fully allocating all costs, including corporate costs to distribution channels and customers, can be explained by the belief that all costs are incurred to support sales of products to customers. Therefore, it is important to consider all costs to determine the true cost of sales and profitability.

Question 17

To guide cost allocation decisions,the ability to bear criterion ________.
A)is the primary criterion used in activity-based costing
B)allocates cost among the beneficiaries in proportion to the benefits each receives.
C)results in subsidizing products that are not profitable
D)is used more frequently than any other criteria

Accepted Answer

The ability to bear criterion often results in subsidizing products that are not profitable because it allocates costs based on the assumption that products with higher sales or margins can "bear" more of the overhead, rather than allocating costs based on actual cause-and-effect relationships.

Question 18

To guide cost allocation decisions,the fairness or equity criterion ________.
A)considers reasonableness as a matter of judgment rather than an operational criterion
B)allocates cost among the beneficiaries in proportion to the benefits each receives
C)is used more frequently than any other criteria
D)is the primary criterion used in activity-based costing

Accepted Answer

The answer of To guide cost allocation decisions,the fairness or...

Question 19

Using the fairness criterion,the costs are allocated among the beneficiaries in proportion to the benefits each receives.

Accepted Answer

Using the benefits received criterion,the costs are allocated among the beneficiaries in proportion to the benefits each receives.

Question 20

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

Accepted Answer

The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation.

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

Why do managers prepare cost-hierarchy-based operating incomes statements?

The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach.

To guide cost allocation decisions,the cause-and-effect criterion ________.

To guide cost allocation decisions,the benefits-received criterion ________.

A company sets up cost pools for indirect cost allocation.Management sees clear cause-and-effect relationships between the incurrence of costs and the chosen the cost-allocation base.What other common relationships or basis with a cost allocation base might management utilize to allocate costs?

When using the cause-and-effect criterion,cost drivers are selected as the cost allocation bases.

Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers?

Which of the following is true of corporate-sustaining costs?

Which of the following is a challenge to using cost-benefit criteria for allocating costs?

Under the cause and effect criterion,reasonableness is a matter of judgment rather than an operational criterion.

When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees,which of the following would be the best criteria?

Today,companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different ________.

Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?

Briefly describe the four criteria used to guide cost-allocation decisions.

What might explain why some managers advocate fully allocating all costs,including corporate costs to distribution channels and to customers?

To guide cost allocation decisions,the ability to bear criterion ________.

To guide cost allocation decisions,the fairness or equity criterion ________.

Using the fairness criterion,the costs are allocated among the beneficiaries in proportion to the benefits each receives.

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.