Question 1

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: $\begin{array}{ccccc}
\text { Construction Sites: } & \text { A } & \text { B } & \text { C } & \text { D } \
\text { Tons Delivered: } & 2,000 & 3,500 & 4,000 & 1,500
\end{array}$ 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 2

Michael & Co. expects overhead costs of $28,000 per month and direct production costs of $14 per unit. The estimated production activity for the current accounting period is as follows: $$\begin{array} { | c | c | c | c | c | } 
\hline & 1 ^ { st } \text {Quarter } & \mathbf { 2 } ^ { \text {nd } } \text { Quarter } & \mathbf { 3 } ^ { \text {rd } } \text { Quarter } & 4 ^ { \text {th } } \text { Quarter } \
\hline \text { Units produced } & 11,700 & 9,200 & 6,350 & 12,750 \
\hline
\end{array}$$ The predetermined overhead rate based on units produced is: (Round the answer to 2 decimal places.)
A) $0.67 per unit.
B) $1.50 per unit.
C) $8.00 per unit.
D) $22.00 per unit.

Accepted Answer

To calculate the predetermined overhead rate, we need to divide the total estimated overhead costs by the estimated production activity in units.

Total estimated overhead costs = $28,000

Estimated production activity = 17,500 units

Predetermined overhead rate = $28,000 ÷ 17,500 units = $1.60 per unit

Therefore, the closest option is C, which rounds to $8.00 per unit.

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: $\begin{array}{lrrr}
&\text { Men's }&\text { Women's}&\text { Children's }\
\text { Labor dollars } & \text { \$ 530,000 } & \$ 775,000 & \$ 240,000 \
\text { Number of employees } & 10 & 20& 4 \
\text { Square footage } & 3,000 & 8,000 & 1,000\
\text { Number of sales transactions } & 300.000 & 900.000 & 90.000
\end{array}$  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 rental costs is square footage. The Women's Department occupies 8,000 out of a total 12,000 square feet (3,000 + 8,000 + 1,000). Therefore, the rental cost allocated to the Women's Department is $(8,000/12,000) \times 50,000 = 33,333$.

Question 4

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $190,000 a year. It is estimated that these employees move 700,000 pounds of material per year. If 70,000 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) $19,000
B) $13,000
C) $26,000
D) $20,000

Accepted Answer

The material handling cost assigned to products made in March is $19,000. This is calculated by multiplying the total material handling cost by the ratio of pounds moved in March to the total pounds moved in a year.

Question 5

State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: $$\begin{array} { l c c c } 
\text { Cost Driver } & \text { Accounting } & \text { Marketing } & \text { Management } \
\text { Number of students } & 700 & 400 & 200 \
\text { Number of classes } & 32 & 18 & 14 \
\text { per semester } & & & \
\text { Number of faculty } & \text { 10 } & 12 & 5
\end{array}$$ 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 6

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 size of the home is the most appropriate allocation base for assigning indirect overhead costs because it directly correlates with the complexity and resource requirements of each construction project, affecting the amount of indirect costs each home should bear.

Question 7

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 actual consumption of resources or efforts, such as labor hours, direct material costs, or the square footage of the warehouses, which vary in size and likely complexity.

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 overhead cost per unit for Product B is $108,000 / (12,000 + 24,000) * 24,000 / 5,000 = $7.20. The total cost per unit for Product B is $15,000 / 5,000 + $24,000 / 5,000 + $7.20 = $22.20.

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

First, we need to calculate the overhead rate per direct labor cost.

Total direct labor cost = (7,000 units of Product A x $6.10 per unit) + (8,000 units of Product B x $3.90 per unit) 
Total direct labor cost = $84,700

Overhead rate = $57,000 / $84,700 = 0.6736

Now we can use this overhead rate to allocate overhead costs to each product.

Product A overhead cost = $6.10 per unit x 0.6736 = $4.11 per unit 
Product B overhead cost = $3.90 per unit x 0.6736 = $2.63 per unit

Total cost per unit of Product A = $20.50 (direct materials) + $6.10 (direct labor) + $4.11 (overhead) = $30.71 
Total cost per unit of Product B = $14.40 (direct materials) + $3.90 (direct labor) + $2.63 (overhead) = $20.93

Therefore, the cost per unit for Product B is $20.93. Round to the nearest cent, the answer is $20.94, which can be represented as $20.94 or $20.9 (if the test is looking for only one decimal place). However, none of the given answer choices match this amount, so the correct answer is None of the answers are correct.

Question 10

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 labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)
A) $36,000
B) $111,000
C) $68,000
D) None of the answers are correct.

Accepted Answer

To allocate overhead costs based on labor cost, we first need to find the total labor cost for both products:

Total labor cost = Labor cost per unit * Number of units produced
Labor cost for Product A = $5 * 4,000 = $20,000
Labor cost for Product B = $9 * 5,000 = $45,000
Total labor cost = $20,000 + $45,000 = $65,000

Next, we can use the labor cost for each product to allocate the overhead costs:

Allocation rate = Total overhead costs / Total labor cost
Allocation rate = $108,000 / $65,000 = 1.6615

Production costs assigned to Product A = Direct materials + Direct labor + (Allocation rate * Labor cost for Product A)
Production costs assigned to Product A = $15,000 + $20,000 + (1.6615 * $20,000) = $67,230

Therefore, the amount of production costs assigned to Product A is $67,230. The closest answer choice is C ($68,000).

Question 11

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

Trace direct costs to individual cost pools is not a step in allocating indirect costs. Direct costs are already assigned to cost objects and do not require allocation. The other answer choices (A, C, and D) are all steps in allocating indirect costs.

Question 12

Jessup Company expects to incur overhead costs of $10,000 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) $183
B) $175
C) $295
D) $130

Accepted Answer

The total overhead costs for the year are $10,000 per month * 12 months = $120,000. The total direct production costs for the year are $125 per unit * 1,000 units = $125,000. The total costs are $120,000 + $125,000 = $245,000. To achieve a gross profit of $50 per unit on 1,000 units, the total gross profit desired is $50 * 1,000 = $50,000. Therefore, the total revenue needed is $245,000 + $50,000 = $295,000. Dividing this by the number of units (1,000) gives a sales price per unit of $295.

Question 13

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

Selection of a cost driver depends on all of the answers given in the options. The availability of information for both cost and the potential cost driver is important to ensure accurate allocation of costs. A cause-and-effect relationship between the cost driver and the cost is necessary to ensure that the cost driver is a valid measure of the activity that causes the cost. However, management judgment is also important in deciding the appropriate cost driver. Therefore, all the options are correct.

Question 14

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 involves dividing a total cost into parts and assigning it to cost objects. Cost tracing involves identifying and measuring the direct costs of a cost object. Cost division is not a commonly used term in accounting.

Question 15

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 16

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 $126,000 at the beginning of the year was expected to deliver 126,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: $$\begin{array} { | l | c | c | c | c | } 
\hline \text { Construction Sites: } & \text { A } & \text { B } & \text { C } & \text { D } \
\hline \text { Tons Delivered: } & 1,000 & 2,500 & 3,000 & 500 \
\hline
\end{array}$$ How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations. Round your answer to the nearest dollar.)
A) $9,000
B) $1,260
C) $3,000
D) None of these answers are correct.

Accepted Answer

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

Question 17

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 18

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $33,000 of store rental costs during the current year. The departments identified the following cost drivers: $\begin{array}{lrrr}
&\text { Men's }&\text { Women's}&\text { Children's }\
\text { Labor dollars } & \text { \$ 533,000 } & \$ 778,000 & \$ 243,000 \
\text { Number of employees } & 13 & 23 & 7 \
\text { Square footage } & 3,300 & 8,300 & 1,300\
\text { Number of sales transactions } & 303.000 & 903.000 & 93.000
\end{array}$  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) $21,233
B) $5,372
C) $5,160
D) $2,363

Accepted Answer

The most appropriate cost driver for rental costs is square footage. The Women's Department occupies 8,300 out of a total of 12,900 square feet (3,300 + 8,300 + 1,300). The rental cost allocated to the Women's Department is $(8,300/12,900) \times \$33,000 = \$21,233$.

Question 19

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 the number of units produced, which reflects the output of the production process, and the amount of direct materials used in production, which reflects the input of the production process. The number of square feet occupied is not necessarily a relevant measure of volume, as it may not correspond to the level of production activity or efficiency.

Question 20

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 good drivers for variable overhead costs, not fixed overhead costs. Fixed costs do not vary with changes in volume, so a different cost driver must be used to allocate them.

Quiz 12: Cost Accumulation, Tracing, and Allocation

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?

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

Selection of a cost driver depends on:

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

For a manufacturer, measures of volume may include:

Which of the following statements is false?