Question 1

Which of the following statements is false?
A) Both direct and indirect costs can be assigned to a cost object.
B) Cost drivers are often selected based on the availability of information.
C) Volume measures are good drivers for fixed overhead costs.
D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.

Accepted Answer

Volume measures are not good drivers for fixed overhead costs because fixed costs do not vary with changes in volume. Instead, a better cost driver for fixed overhead costs would be something like machine hours or square footage.

Question 2

The process of dividing a total cost into parts and assigning it to cost objects is known as:
A) cost tracing.
B) cost division.
C) cost allocation.
D) None of the answers are correct.

Accepted Answer

Cost allocation is the process of dividing a total cost into parts and assigning it to cost objects such as products, services, departments, or customers. Cost tracing is a specific form of cost allocation where the cost is directly assigned to a specific cost object based on the use of resources. Cost division is not a recognized term in cost accounting.

Question 3

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers: $\begin{array}{lrrr}
&\text { Men's }&\text {Women's}&\text { Children's }\
\text { Labor dollars } & \$ 530,000 & \$ 775,000 & \$ 240,000 \
\text { Number of employees } &10& 20 &4\
\text { Square footage } & 3,00 & 8,000 & 1,000 \
\text { Number of sales transactions } &300,000 & 900,000 &90,000
\end{array}$ Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round final answer to the nearest dollar.)
A) $33,333
B) $29,412
C) $25,081
D) $34,884

Accepted Answer

The most appropriate cost driver for allocating rental costs is the number of sales transactions. The Women's Department had 900,000 sales transactions, which is 90% of the total sales transactions. Therefore, the Women's Department should be allocated 90% of the $50,000 rental costs, which is $45,000.

Question 4

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?
A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses

Accepted Answer

The number of warehouses completed is not a rational base for allocating overhead costs because it does not directly correlate with the amount of resources consumed or the complexity of each project. Overhead costs are more accurately allocated based on factors that reflect the effort, materials, or size of the project, such as labor hours, direct material costs, or square footage, rather than simply the count of projects completed.

Question 5

Jessup Company expects to incur overhead costs of $20,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?
A) $175
B) $195
C) $415
D) $290

Accepted Answer

The answer of Jessup Company expects to incur overhead costs...

Question 6

Selection of a cost driver depends on:
A) The availability of information for both the cost and the potential cost driver.
B) A cause-and-effect relationship between the cost driver and the cost.
C) Judgment of management.
D) All of the answers are correct.

Accepted Answer

All of the listed factors are important considerations when selecting a cost driver. The availability of information is important because cost drivers need to be measurable and observable. A cause-and-effect relationship is necessary because the cost driver must have a logical relationship with the cost being allocated. However, management judgment is also necessary since some cost drivers may have multiple potential choices or may require a trade-off between accuracy and ease of use. Therefore, all choices are correct.

Question 7

Which of the following is not a step in allocating indirect costs to cost objects?
A) Multiply the allocation rate by the weight of the cost driver.
B) Trace direct costs to individual cost pools.
C) Compute an allocation rate by dividing the total cost to be allocated by the total cost driver volume.
D) All of the answers are steps in allocating indirect costs.

Accepted Answer

Tracing direct costs to individual cost pools is not a step in allocating indirect costs as indirect costs cannot be traced directly to cost objects.

Question 8

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c } 
& \text {Product A } & \text { Product B} \
\text { Direct materials } & \$ 20,000 & \$ 15,000 \
\text { Direct labor } & \$ 12,000 & 24,000
\end{array}$$ The company's overhead costs of $108,000 are allocated based on direct labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What is the cost per unit for product B? (Do not round intermediate calculations.)
A) $7.80
B) $22.20
C) $16.80
D) None of the answers are correct.

Accepted Answer

The answer of Sheddon Industries produces two products. The products'...

Question 9

Sheddon Industries produces two products. The products' identified costs are as follows: $$\begin{array} { l c c } 
& \text {Product A } & \text { Product B} \
\text { Direct materials } & \$ 23,000 & \$ 19,000 \
\text { Direct labor } & \$ 11,000 & 27,000
\end{array}$$ The company's overhead costs of $57,000 are allocated based on direct labor cost. Assume 7,000 units of product A and 8,000 units of Product B are produced. What is the cost per unit for product B? (Do not round intermediate calculations.)
A) $12.69
B) $10.69
C) $11.06
D) None of the answers are correct.

Accepted Answer

The answer of Sheddon Industries produces two products. The products'...

Question 10

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: $$\begin{array} { | l | c | c | c | c | } 
\hline& 1 ^ { \text {st } } \text { Quarter } & 2 ^ { \text {nd } } \text { Quarter } & \mathbf { 3 } ^ { \text {rd } } \text { Quarter } & 4 ^ { \text {th } } \text { Quarter} \
\hline \text { Units produced } & 11,500 & 5,000 & 8,250 & 11,250 \
\hline
\end{array}$$ The predetermined overhead rate based on units produced is: (Round the answer to 2 decimal places.)
A) $1.50 per unit.
B) $2.67 per unit.
C) $18.00 per unit.
D) $42.00 per unit.

Accepted Answer

The answer of Michael & Co. expects overhead costs of...

Question 11

For a manufacturer, measures of volume may include:
A) Number of units produced.
B) Number of square feet occupied.
C) Amount of direct materials used in production.
D) Both number of units produced and amount of direct materials used in production are correct.

Accepted Answer

Measures of volume for a manufacturer typically include quantifiable metrics directly related to production, such as the number of units produced and the amount of direct materials used in production. These measures help in assessing productivity and efficiency.

Question 12

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $189,000 a year. It is estimated that these employees move 690,000 pounds of material per year. If 69,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? (Do not round intermediate calculations.)
A) $18,900
B) $12,900
C) $25,900
D) $19,900

Accepted Answer

The cost per pound is $189,000 / 690,000 pounds = $0.274 per pound. For March, 69,000 pounds are moved, so the cost is 69,000 * $0.274 = $18,906, which rounds to $18,900.

Question 13

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $24,000 of store rental costs during the current year. The departments identified the following cost drivers: $\begin{array}{lrrr}
&\text { Men's }&\text {Women's}&\text { Children's }\
\text { Labor dollars } & \$ 524,000 & \$ 769,000 & \$ 234,000 \
\text { Number of employees } & 26 & 36 & 20 \
\text { Square footage } & 2,400 & 7,400 & 1,500 \
\text { Number of sales transactions } & 294,000 & 894,000 & 84,000
\end{array}$ Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round your answer to the nearest dollar.)
A) $15,717
B) $5,854
C) $3,678
D) $1,585

Accepted Answer

The most appropriate cost driver for allocating rental costs is square footage. The Women's Department occupies 7,400 out of a total of 11,300 square feet (2,400 + 7,400 + 1,500). The allocation is calculated as: (7,400 / 11,300) * $24,000 = $15,717.

Question 14

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $120,000 at the beginning of the year was expected to deliver 200,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: $\begin{array} { l c c c }
 \text { Construction Sites:}& \text { A } & \text { B } & \text { C } & \text { D } \ 
 \text {  Tons Delivered:}&2,000 & 3,500 & 4,000 & 1,500 \end{array}$ How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations.)
A) $21,818
B) $30,000
C) $2,000
D) None of these answers are correct.

Accepted Answer

The answer of The Flintstone Construction Company delivers dirt and...

Question 15

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $122,000 at the beginning of the year was expected to deliver 122,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Construction Sites: } & \text { A } & \text { B } & \text { C } & \text { D } \
\hline \text { Tons Delivered: } & 1,400 & 2,500 & 3,400 & \text { 900 } \
\hline
\end{array}$$ How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations. Round your answer to the nearest dollar.)
A) $12,767
B) $1,220
C) $3,400
D) None of these answers are correct.

Accepted Answer

The answer of The Flintstone Construction Company delivers dirt and...

Question 16

Jessup Company expects to incur overhead costs of $12,000 per month and direct production costs of $138 per unit. The estimated production activity for the upcoming year is 1,200 units. If the company desires to earn a gross profit of $63 per unit, the sales price per unit would be which of the following amounts?
A) $209
B) $201
C) $321
D) $143

Accepted Answer

To find the sales price per unit, we need to calculate the total cost per unit and add a gross profit of $63 to it.

Total cost per unit = Direct production costs + Overhead costs 
                    = $138 + ($12,000/1,200) 
                    = $138 + $10 
                    = $148

Sales price per unit = Total cost per unit + Gross profit per unit 
                             = $148 + $63
                             = $211

Therefore, the sales price per unit would be $321 (option C) to earn a gross profit of $63 per unit.

Question 17

State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: $$\begin{array} { l c c c } 
\text { Cost Driver } & \text { Accounting } & \text { Marketing } & \text { Management } \
\text { Number of gtudenta } & 700 & 400 & 200 \
\text { Number of clageg } & 32 & 18 & 14 \
\text { per semester } & & & \
\text { Number of faculty } & \text { 10 } & 12 & 5
\end{array}$$ The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor?
A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty.
B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty.
C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester.
D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

Accepted Answer

The answer of State University's College of Business is divided...

Question 18

Michael & Co. expects overhead costs of $16,000 per month and direct production costs of $30 per unit. The estimated production activity for the current accounting period is as follows: $$\begin{array} { | c | c | c | c | c | } 
\hline & 1 ^ { st} \text {Quarter } & 2 ^ { \text {nd } } \text { Quarter }& { 3 } ^ { \text {rd } }\text { Quarter }   \text { Quarter } & 4 ^ { \text {th } } \text { Quarter } \
\hline \text { Units produced } & 10,500 & 6,000 & 6,000 & 9,500 \
\hline
\end{array}$$ The predetermined overhead rate based on units produced is: (Round the answer to 2 decimal places.)
A) $0.50 per unit.
B) $2.00 per unit.
C) $6.00 per unit.
D) $36.00 per unit.

Accepted Answer

The predetermined overhead rate based on units produced can be calculated with the formula:
Predetermined overhead rate = Estimated total overhead costs / Estimated total units of production

We are given that the estimated total overhead costs are $16,000 per month. To find the estimated total units of production, we add up the estimated production activity for the current accounting period: 2,000 + 3,000 + 1,000 = 6,000 units.

Using the formula above, we get:
Predetermined overhead rate = $16,000 / 6,000 units
Predetermined overhead rate = $2.67 per unit

However, the answer choices are rounded to 2 decimal places, so we need to round our answer to the nearest cent. The predetermined overhead rate based on units produced is therefore $2.67 per unit, which when rounded to 2 decimal places is $2.00 per unit.

Since none of the answer choices match $2.67 per unit, we choose the closest option, which is C, $6.00 per unit.

Question 19

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $360,000 a year. It is estimated that these employees move 600,000 pounds of material per year. If 60,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? (Do not round intermediate calculations.)
A) $36,000
B) $24,000
C) $50,000
D) $38,000

Accepted Answer

The answer of Haskins Company employs material handling employees who...

Question 20

During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:
A) Number of homes built during the month.
B) Number of months in the year.
C) Number of homes built during the year.
D) Size of the home.

Accepted Answer

The most appropriate allocation base for assigning indirect overhead costs in this scenario is the size of the home. This is because the size of the home is likely to have a direct correlation with the amount of materials, labor, and time required for construction, which in turn affects the overhead costs. The other options do not account for the variability in costs associated with the differences in home sizes.

Quiz 12: Cost Accumulation, Tracing, and Allocation

Which of the following statements is false?

The process of dividing a total cost into parts and assigning it to cost objects is known as:

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?

Selection of a cost driver depends on:

Which of the following is not a step in allocating indirect costs to cost objects?

For a manufacturer, measures of volume may include: