Question 1

Under the incremental method, the first incremental user usually receives the highest allocation of the common costs.

Accepted Answer

A) True 
 B)False  False

Question 2

There are multiple cost objects in most costing systems.

Accepted Answer

A) True 
 B)False  True

Question 3

Krum Lawn Equipment has five departments, of which Casting and Finishing are producing departments. Maintenance, Product Movement, and Inspection are service departments. The distribution of the service departments is as follows:
     Required:
Use the direct method to allocate the service departments' costs. Prepare a schedule showing the total costs allocated to each department.

Accepted Answer

Maintenance
   Product movement
   Inspection

Question 4

Matrix algebra may be used to solve linear equations.

Accepted Answer

A) True 
 B)False

Question 5

Use the information below to answer the following question(s).
Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $20,000 are allocated based on the number of employees. Costs of Departments A and B are $40,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
  
-What is the cost of the Maintenance Department allocated to Department A using the step-down method if the Personnel Department is allocated first?

Accepted Answer

A)  $8,000 
B)  $4,706 
C)  $5,000 
D)  $12,000 
E)  $14,118 
A)  $8,000 
B)  $4,706 
C)  $5,000 
D)  $12,000 
E)  $14,118

Question 6

Use the information below to answer the following question(s).
We Be Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 of common variable costs. Data are provided below for the capacity allowed and the capacity used.
   For both departments, common fixed costs are to be allocated on the basis of capacity provided and common variable costs are to be allocated on the basis of capacity used.
-Both fixed and variable costs are allocated according to capacity used. The fixed and variable costs allocated to the Sauna Department are

Accepted Answer

A)  $30,000 and $50,000, respectively. 
B)  $30,000 and $60,000, respectively. 
C)  $30,000 and $75,000 respectively. 
D)  $40,000 and $60,000, respectively. 
E)  $60,000 and $40,000, respectively. 
A)  $30,000 and $50,000, respectively. 
B)  $30,000 and $60,000, respectively. 
C)  $30,000 and $75,000 respectively. 
D)  $40,000 and $60,000, respectively. 
E)  $60,000 and $40,000, respectively.

Question 7

Answer the following questions using the information below:
The Fancy Flier Airplane Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:
   Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours.
-If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be allocated to the Small Plane Department? Assume budgeted usage is used to allocate materials laboratory costs and actual usage is used to allocate variable materials laboratory costs.

Accepted Answer

A)  $822,500 
B)  $782,500 
C)  $817,500 
D)  $763,750 
E)  $832,000 
A)  $822,500 
B)  $782,500 
C)  $817,500 
D)  $763,750 
E)  $832,000

Question 8

Under the incremental method of allocating common costs

Accepted Answer

A)  the parties are interested in being viewed as primary users. 
B)  each party bears a proportionate share of the total costs in relation to their individual stand-alone costs. 
C)  fairness and equity are emphasized. 
D)  there is a disincentive to be titled the primary user. 
E)  no ranking of users is required. 
A)  the parties are interested in being viewed as primary users. 
B)  each party bears a proportionate share of the total costs in relation to their individual stand-alone costs. 
C)  fairness and equity are emphasized. 
D)  there is a disincentive to be titled the primary user. 
E)  no ranking of users is required.

Question 9

If the incremental method were used, what amount of cost would be allocated to the start-up business?

Accepted Answer

A)  $20,000 
B)  $100,000 
C)  $80,000 
D)  $84,000 
E)  $21,000 
A)  $20,000 
B)  $100,000 
C)  $80,000 
D)  $84,000 
E)  $21,000

Question 10

Edgar Ltd. is looking at implementing a new costing system to refine its support department allocations. The company currently has four support divisions: Accounting (Acctg), Research & Development (R&D), Human Resources (HR) and Information Technology (IT). It has two operating divisions: Central and Western. In an effort to improve its costing, Edgar wishes to implement reciprocal cost allocation. The following table summarizes information on the cost pools and usage:
   Operating costs of the Central and Western Divisions are $1,200,000 and $750,000 respectively.
Required:
a. Use the matrix algebra function in Excel to calculate the inverse of the coefficient matrix for support divisions.
b. Multiply the inverse of the coefficient matrix by the vector of constants to obtain the artificial costs.
c. Calculate the allocation of costs to the support and operating departments.

Accepted Answer

a. Inverse

Question 11

The reciprocal allocation method does not incorporate interdepartmental relationships fully into the support department cost allocations.

Accepted Answer

A) True 
 B)False

Question 12

The belief that a corporate division with higher sales ought to be allocated more of the company's advertising costs because it must have derived more benefit from the expenditures than a division with lower sales, is an example of which criteria for cost allocation decisions?

Accepted Answer

A)  ability to bear 
B)  benefits expended 
C)  causality 
D)  fairness and equity 
E)  benefit received 
A)  ability to bear 
B)  benefits expended 
C)  causality 
D)  fairness and equity 
E)  benefit received

Question 13

Benefits of the dual-rate method include

Accepted Answer

A)  variable costs that are transformed into fixed costs for user decision making. 
B)  the low cost of implementation. 
C)  avoidance of expensive analysis for categorizing costs as either fixed or variable. 
D)  information that leads to outsourcing decisions that benefit the organization as a whole. 
E)  increased costs of implementation. 
A)  variable costs that are transformed into fixed costs for user decision making. 
B)  the low cost of implementation. 
C)  avoidance of expensive analysis for categorizing costs as either fixed or variable. 
D)  information that leads to outsourcing decisions that benefit the organization as a whole. 
E)  increased costs of implementation.

Question 14

Deciding whether to make a component part or to purchase it, would be an example of which cost allocation purpose?

Accepted Answer

A)  to provide information for economic decisions 
B)  to motivate managers 
C)  to determine employee's wages 
D)  to measure income and assets for reporting to external parties 
E)  to motivate employees 
A)  to provide information for economic decisions 
B)  to motivate managers 
C)  to determine employee's wages 
D)  to measure income and assets for reporting to external parties 
E)  to motivate employees

Question 15

The step-down allocation method allows partial recognition of services rendered by support departments to other support departments.

Accepted Answer

A) True 
 B)False

Question 16

The single-rate method makes a distinction between fixed and variable costs.

Accepted Answer

A) True 
 B)False

Question 17

Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?

Accepted Answer

A)  fixed method 
B)  dual-rate method 
C)  homogeneous method 
D)  standard cost method 
E)  single-rate method 
A)  fixed method 
B)  dual-rate method 
C)  homogeneous method 
D)  standard cost method 
E)  single-rate method

Question 18

The fixed costs of operating the maintenance facility of General Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance-hour. The facility averages 40,000 maintenance-hours a year. Budgeted and actual hours per user for the year are as follows:
   Assume that budgeted maintenance-hours are used to calculate the allocation rates.
Required:
a. If a single-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department?
b. If a single-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?
c. If a dual-rate cost-allocation method is used, what amount of maintenance cost will be budgeted for each department?
d. If a dual-rate cost-allocation method is used, what amount of maintenance cost will be allocated to each department based on budgeted usage for fixed operating costs and actual usage for variable operating costs?

Accepted Answer

a. Total costs + $4,500,000 +

Question 19

The step-down allocation method:

Accepted Answer

A)  typically begins with the support department that provides the highest percentage of its total services to other support departments 
B)  recognizes the total amount of services that support departments provide to each other 
C)  allocates complete reciprocated costs 
D)  offers key input for outsourcing decisions 
E)  allocates support department costs to production departments only 
A)  typically begins with the support department that provides the highest percentage of its total services to other support departments 
B)  recognizes the total amount of services that support departments provide to each other 
C)  allocates complete reciprocated costs 
D)  offers key input for outsourcing decisions 
E)  allocates support department costs to production departments only

Question 20

A grouping of individual cost items is known as

Accepted Answer

A)  a cost pool. 
B)  an allocation base. 
C)  grouped direct costs. 
D)  grouped indirect costs. 
E)  a homogenous cost group. 
A)  a cost pool. 
B)  an allocation base. 
C)  grouped direct costs. 
D)  grouped indirect costs. 
E)  a homogenous cost group.

Under the incremental method, the first incremental user usually receives the highest allocation of the common costs.

There are multiple cost objects in most costing systems.

Matrix algebra may be used to solve linear equations.

Under the incremental method of allocating common costs

If the incremental method were used, what amount of cost would be allocated to the start-up business?

The reciprocal allocation method does not incorporate interdepartmental relationships fully into the support department cost allocations.

The belief that a corporate division with higher sales ought to be allocated more of the company's advertising costs because it must have derived more benefit from the expenditures than a division with lower sales, is an example of which criteria for cost allocation decisions?

Benefits of the dual-rate method include

Deciding whether to make a component part or to purchase it, would be an example of which cost allocation purpose?

The step-down allocation method allows partial recognition of services rendered by support departments to other support departments.

The single-rate method makes a distinction between fixed and variable costs.

Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?

The step-down allocation method:

A grouping of individual cost items is known as

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters

Exam 14: Period Cost Allocation

Under the incremental method, the first incremental user usually receives the highest allocation of the common costs.

There are multiple cost objects in most costing systems.

Matrix algebra may be used to solve linear equations.

Under the incremental method of allocating common costs

If the incremental method were used, what amount of cost would be allocated to the start-up business?

The reciprocal allocation method does not incorporate interdepartmental relationships fully into the support department cost allocations.

The belief that a corporate division with higher sales ought to be allocated more of the company's advertising costs because it must have derived more benefit from the expenditures than a division with lower sales, is an example of which criteria for cost allocation decisions?

Benefits of the dual-rate method include

Deciding whether to make a component part or to purchase it, would be an example of which cost allocation purpose?

The step-down allocation method allows partial recognition of services rendered by support departments to other support departments.

The single-rate method makes a distinction between fixed and variable costs.

Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?

The step-down allocation method:

A grouping of individual cost items is known as

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Multinational Performance Measurement and Compensation

Filters