Question 1

Services performed by service departments for the benefit of an operating department are called interdepartmental services.

Accepted Answer

The answer of Services performed by service departments for the...

Question 2

The step method of allocating service department costs allocates those costs to operating departments only.

Accepted Answer

The step method of allocating service department costs allocates costs to both other service departments (if applicable) and operating departments, not just to operating departments.

Question 3

Indirect costs should not be pooled unless they share a common cost driver.

Accepted Answer

Indirect costs should only be allocated or pooled together if they share a common cost driver. If there is no common cost driver, each indirect cost should be allocated separately to individual cost objects or activities.

Question 4

The split-off point is the point at which individual products resulting from a joint process can be identified.

Accepted Answer

This statement is true. The split-off point marks the point in a joint process where the different products resulting from the process can be recognized and separated.

Question 5

Use of the direct method to allocate service department costs may cause distortions in the measurement of cost objects.

Accepted Answer

The direct method does not account for the mutual services provided between service departments, leading to the possibility of inaccurately allocating costs to cost objects.

Question 6

To avoid the appearance that a joint product is incurring losses, a company might allocate joint costs based on relative sales value of each product at the split-off point.

Accepted Answer

Allocating joint costs based on relative sales value of each product at the split-off point can help avoid the appearance of losses for a joint product. This is because it reflects the actual value that each product contributes to the overall revenue, rather than simply dividing the costs equally among all products.

Question 7

The method used to allocate service department costs can cause overstatement of costs for some cost objects and understatement for others.

Accepted Answer

Different methods of allocating service department costs can lead to overstatement of costs for some cost objects and understatement for others, depending on the cost allocation basis used and the nature of the cost objects. For example, if a service department's costs are allocated based on the number of employees, a cost object with fewer employees may be charged proportionately more, while a cost object with more employees may be charged proportionately less. To avoid such biases, it is important to use a cost allocation basis that reflects the way in which service department costs are actually generated and consumed by the various cost objects.

Question 8

The amount of joint costs allocated to a product must be considered when deciding whether to sell a joint product at the split-off point or later after additional processing.

Accepted Answer

The decision to sell a joint product at the split-off point or process it further should be based on the incremental revenue and costs from additional processing, not on the joint costs allocated to the product, as these are sunk costs and do not change with the decision.

Question 9

Sometimes, several types of costs are accumulated into a single total for the purpose of cost allocation. This single total is referred to as a joint cost.

Accepted Answer

The answer of Sometimes, several types of costs are accumulated...

Question 10

The direct method of allocating service department costs does not take into account the fact that service departments often provide assistance to other service departments.

Accepted Answer

The direct method only allocates service department costs to production departments and does not consider the mutual support between service departments. This can lead to an unfair distribution of costs and inaccurate product costs.

Question 11

The direct method of allocating service department costs allocates those costs to operating departments only.

Accepted Answer

The direct method only allocates service department costs to operating departments and does not allocate any service department costs to other service departments.

Question 12

For financial reporting, joint costs are assigned to the product with the highest sales value.

Accepted Answer

Joint costs are allocated based on an allocated basis, which typically reflects the relative value of the individual products produced from the joint process. It is not necessarily related to the sales value of a product.

Question 13

Illustrate with examples how cost definitions are independent and context sensitive. In other words, indicate how a cost can be classified as fixed or variable and direct or indirect, depending on the situation.

Accepted Answer

The answer of Illustrate with examples how cost definitions are...

Question 14

Inaccurate allocation of joint costs to the individual products could cause an unprofitable product to appear to be profitable.

Accepted Answer

Joint costs are common costs incurred in producing multiple products simultaneously. The allocation of these costs to individual products can be subjective and may not always be accurate. Failing to accurately allocate these costs can result in an unprofitable product appearing profitable, which can mislead decision-making.

Question 15

What are cost objects? List examples of cost objects.

Accepted Answer

The answer of What are cost objects? List examples of...

Question 16

A company's total profit can be affected by the method used to allocate joint costs.

Accepted Answer

The allocation of joint costs does not affect a company's total profit; it only affects how the profit is distributed among different products or departments within the company. Total profit is determined by the company's overall revenue and expenses, not by the internal allocation of costs.

Question 17

Once indirect costs are pooled, they must remain pooled for all allocations.

Accepted Answer

Indirect costs can be allocated from the pool to different objects based on relevant allocation bases, and the method of allocation can change as needed for accurate costing or due to changes in business operations or accounting policies.

Question 18

Joint costs total $24,000 for a production process that yields two main products, A and
A.
B. If joint costs are allocated to the products on the basis of their respective $20,000 and $30,000 sales values, 2/3 of the joint costs (or $16,000) would be allocated to Product

Accepted Answer

Allocation rate for Product A = $24,000 in joint costs x [$20,000 ÷ ($20,000 + $30,000)] = 40%
Allocation of joint costs to Product A = 40% x $24,000 = $9,600

Question 19

Joint costs are irrelevant in a decision to sell a joint product at the split-off point or process it further.

Accepted Answer

Joint costs are sunk costs by the time the decision to sell or process further is made, so they do not affect the incremental analysis for that decision.

Question 20

The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made.

Accepted Answer

Cost pools allow for grouping of similar costs, reducing the number of individual cost allocations that need to be made. This can simplify the allocation process and make it more accurate.

Quiz 4: Cost Accumulation, Tracing, and Allocation