Question 1

A predetermined overhead rate is calculated using estimated or predicted cost and volume data.

Accepted Answer

A predetermined overhead rate is calculated in advance based on estimated overhead costs and expected activity levels. This rate is then used to apply overhead costs to products or services during the accounting period.

Question 2

A company may use several different cost drivers to allocate its indirect costs.

Accepted Answer

A company may use different cost drivers such as number of employees, machine hours, or square footage to allocate its indirect costs to different departments or products.

Question 3

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

Accepted Answer

Indirect costs should be allocated based on their specific cost driver, rather than being averaged or pooled together. This ensures that the costs are accurately assigned to the activities or products that actually cause them.

Question 4

Each indirect cost should be allocated to products individually to provide the most useful cost information.

Accepted Answer

Indirect costs are not directly traceable to a single product, so they are allocated based on a predetermined overhead rate or cost driver, rather than individually to products. This approach provides a more practical and efficient method for assigning costs to products.

Question 5

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

Accepted Answer

In a heavily automated production department, machines are likely to be the primary cost driver for overhead costs, rather than direct labor hours. This is because machines consume a significant amount of resources, such as electricity and maintenance, while direct labor may not be as closely related to overhead costs. Therefore, allocating overhead based on machine hours would be more appropriate in this scenario.

Question 6

A cost pool should be made up of costs with a common cost object.

Accepted Answer

The answer of A cost pool should be made up...

Question 7

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 8

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 9

What are cost objects? List examples of cost objects.

Accepted Answer

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

Question 10

How are indirect costs assigned to cost objects? Are they traced to cost objects?

Accepted Answer

The answer of How are indirect costs assigned to cost...

Question 11

How can the use of a predetermined overhead rate prevent timing problems in determining the costs of products?

Accepted Answer

The answer of How can the use of a predetermined...

Question 12

What is the object of allocating fixed overhead costs to products?

Accepted Answer

The answer of What is the object of allocating fixed...

Question 13

Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12^th of the cost each month.

Accepted Answer

The answer of Because Fenwick Company has significant swings in...

Question 14

Sometimes, volume-based cost drivers are used to allocate fixed indirect costs.

Accepted Answer

Volume-based cost drivers such as direct labor hours, machine hours, or units produced are commonly used to allocate fixed indirect costs such as rent or property taxes to different products or services.

Question 15

Assume that factory depreciation for the year is $240,000. What problem could result from dividing that amount by 12 and assigning $20,000 in depreciation to the products made each month?

Accepted Answer

The answer of Assume that factory depreciation for the year...

Question 16

The selection of the most appropriate cost driver often requires considerable judgment in the absence of a strong cause-and-effect relationship.

Accepted Answer

This statement is true. Selecting the most appropriate cost driver may not always have a clear cause-and-effect relationship, and may require judgment, estimation, and analysis.

Question 17

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

Accepted Answer

By establishing cost pools, similar costs can be grouped together and allocated to the appropriate cost objects, reducing the number of individual cost allocations that need to be made. This can streamline the costing process and improve accuracy.

Question 18

What should a company consider when pooling indirect costs?

Accepted Answer

The answer of What should a company consider when pooling...

Question 19

What cost driver would you use to allocate indirect materials to products?

Accepted Answer

The answer of What cost driver would you use to...

Question 20

Why is a company's selection of cost allocation methods important to individual managers?

Accepted Answer

The answer of Why is a company's selection of cost...

Quiz 12: Cost Accumulation, Tracing, and Allocation