Question 1

To allocate corporate costs to divisions, the ideal situation would be for the allocation base to ________.
A) be an output unit-level base
B) have the best cause-and-effect relationship with the costs
C) combine administrative costs and human resource management costs
D) allocate the fixed costs only

Accepted Answer

The ideal allocation base should have the best cause-and-effect relationship with the costs. This ensures that the division responsible for generating the cost incurs the associated charge. Allocating fixed costs only or combining administrative costs and human resource management costs may lead to inaccurate allocations. An output unit-level base may not be appropriate if the divisions have different product lines or use different resources to produce their outputs.

Question 2

The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $16,000,000 bond issuance, the Electric Mixer Division used $9,600,000 and the Electric Lamp Division used $6,400,000 for expansion. Interest costs on the bond totaled $1,000,000 for the year. What amount of interest costs should be allocated to the Electric Lamp Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
A) $400,000
B) $600,000
C) $625,000
D) $6,400,000

Accepted Answer

Costs allocated to the Electric Lamp Division = $6,400,000 / $16,000,000 × $1,000,000 = $400,000

Question 3

NOT allocating some corporate costs to divisions and products results in which of the following?
A) an increase in overall corporate profitability
B) the sum of individual product profitability being less than overall company profitability
C) the sum of individual product profitability being greater than overall company profitability
D) a decrease in overall corporate profitability

Accepted Answer

When corporate costs are not allocated to divisions and products, the profitability of individual products appears higher because these costs are not deducted from their revenues. This results in the sum of individual product profitability being greater than the overall company profitability, where corporate costs are considered.

Question 4

Which of the following is true about the process of making cost allocations?
A) the costs of designing and implementing a cost allocation system are less visible than the benefits of such a system
B) a cost benefit-analysis cannot be performance on cost allocation systems because the benefits are difficult to estimate
C) the costs of cost allocation systems is mostly the cost of collection
D) as the cost of collecting and processing cost allocation information decreases, it becomes more economically feasible to provide more detailed cost allocations

Accepted Answer

As the cost of collecting and processing cost allocation information decreases, it becomes more economically feasible to provide more detailed cost allocations. This is because the benefits of having more detailed cost allocations outweigh the costs of collecting and processing the information. Option A is incorrect because the costs of designing and implementing a cost allocation system can be significant and should not be overlooked. Option B is incorrect because a cost-benefit analysis can be performed on cost allocation systems, although it may be challenging to estimate the benefits. Option C is incorrect because the cost of collection is only one component of the overall cost of a cost allocation system.

Question 5

Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled.

Accepted Answer

Allocating all corporate costs forces division managers to take ownership of these costs, which motivates them to evaluate how corporate costs are planned and managed. This can lead to greater efficiency and better cost management throughout the organization.

Question 6

When the cost pools are homogeneous which of the following will be true?
A) the number of needed cost pools will be more
B) the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base
C) managers should not allocate both variable costs and costs that are fixed in the short-run
D) there will be a greater variety of cause-and-effect, benefits-received, or fair-and-equitable relationship with the cost-allocation base

Accepted Answer

When the cost pools are homogeneous, it means that the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base. Therefore, managers should allocate both variable costs and costs that are fixed in the short-run. However, the number of needed cost pools will be less, and there will be less variety in the cause-and-effect or benefits-received relationship with the cost-allocation base.

Question 7

When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

Accepted Answer

The greater the degree of homogeneity, the fewer the cost pools required to accurately explain the use of company resources.

Question 8

While allocating corporate costs to divisions ________.
A) only fixed costs should be allocated
B) no homogeneous cost pools should be constructed
C) all the costs in the cost pool should not have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base
D) allocate both variable and fixed costs to divisions and then to customers

Accepted Answer

Allocating both variable and fixed costs to divisions and then to customers ensures that the full cost of operating the divisions is captured. This approach provides a more comprehensive view of the costs associated with each division and allows for better decision-making regarding pricing, budgeting, and resource allocation.

Question 9

Companies that want to calculate the full cost of products must allocate all corporate costs to divisions.

Accepted Answer

When calculating the full cost of a product, all corporate costs must be allocated to the divisions in order to accurately determine the costs associated with producing and selling the product. This includes overhead costs such as marketing, research and development, and administrative expenses. By allocating these costs to the appropriate divisions, companies can determine the true cost of their products and make informed decisions about pricing and profitability.

Question 10

Corporate brand advertising and general administration costs are examples of corporate costs.

Accepted Answer

Corporate brand advertising and general administration costs are considered corporate costs, which are expenses that a company incurs in the overall management and administration of its business.

Question 11

In cost allocation, R&D costs are used to ________.
A) provide information for economic decisions
B) report to external parties when using generally accepted accounting principles
C) calculate costs of a government contract
D) calculate prime cost of a product

Accepted Answer

R&D costs are used to provide information for economic decisions, such as pricing, product development, and investment decisions. They are not used to report to external parties when using generally accepted accounting principles, calculate costs of a government contract, or calculate prime cost of a product.

Question 12

The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,500,000 and the Electric Lamp Division used $3,500,000 for expansion. Interest costs on the bond totaled $975,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
A) $563,333
B) $711,750
C) $3,500,000
D) $9,500,000

Accepted Answer

Costs allocated to the Electric Mixer Division = ($9,500,000 / 13,000,000) × $975,000 = $711,750

Question 13

Homogeneous cost pool leads to which of the following?
A) more accurate costs of a given cost object
B) more resources being assigned to that cost object
C) the need for more cost drivers
D) the need for different cost allocation bases to allocate the costs

Accepted Answer

Homogeneous cost pool means that costs with similar characteristics are grouped together. This leads to more accurate costs of a given cost object as the costs are allocated using the same cost allocation base. Hence, option A is the correct choice. Option B is not necessarily true as more resources may not be needed for a cost object just because of a homogeneous cost pool. Option C is not correct as more cost drivers are not needed, rather the same cost allocation base is used for all costs in the homogeneous pool. Option D is also not correct as a homogeneous cost pool uses the same cost allocation base for all costs.

Question 14

Dartmouth Building Products Inc. provides the following information.
Corporate advertising costs = $860,000
Division A - $4,900,000
Division B - $19,600,000
Number of ads run on Division A products 600
Number of ads run on Division B products 4400
Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues. What is the allocated corporate costs for Division B?
A) $756,800
B) $215,000
C) $688,000
D) $172,000

Accepted Answer

Allocated corporate cost for Division B = $19,600,000 / ($4,900,000 + $19,600,000) × $860,000 = $688,000

Question 15

Corporate administrative costs allocated to a division cost pool are most likely to be ________.
A) output unit-level costs
B) facility-sustaining costs
C) product-sustaining costs
D) batch-level costs

Accepted Answer

Corporate administrative costs are typically facility-sustaining costs, as they support the entire organization rather than individual products, batches, or output units.

Question 16

If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

Accepted Answer

If a cost pool is homogeneous, it means that all the costs in the pool have the same cost driver or basis of allocation. In such a case, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately. This is because the allocation basis is the same for all the costs in the pool.

Question 17

Dartmouth Building Products Inc. provides the following information.
Corporate advertising costs = $850,000
Division A - $5,000,000
Division B - $20,000,000
Number of ads run relevant on Division A products 500
Number of ads run relevant to Division B products 3667
Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues. What is the allocated corporate costs for Division A?
A) $748,000
B) $212,500
C) $170,000
D) $850,000

Accepted Answer

Allocated corporate cost for Division A = $5,000,000 / ($5,000,000 + $20,000,000) ×
$850,000 = $170,000

Question 18

The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $15,000,000 bond issuance, the Electric Mixer Division used $9,400,000 and the Electric Lamp Division used $5,600,000 for expansion. Interest costs on the bond totaled $980,000 for the year.
The above interest costs would be considered a(n) ________.
A) output unit-level cost
B) facility-sustaining cost
C) product-sustaining cost
D) batch-level cost

Accepted Answer

The interest costs on the bond issuance would be considered a product-sustaining cost because they relate to the financing of the expansion projects for each respective division (Electric Mixer and Electric Lamp). This cost is not specific to any one unit or batch of products, nor is it related to the operation or maintenance of a facility.

Question 19

Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.

Accepted Answer

Homogeneous cost pools are made up of costs that have the same or similar cause-and-effect or benefits-received relationship with the cost-allocation base, making the statement true.

Question 20

When individual activities within a cost pool have a similar relationship with the cost driver, which of the following could be said about the cost pool?
A) the costs accumulated in the cost pool are not used for customer-profitability analysis
B) there is a need for need multiple cost drivers to allocate costs from the pool to customers
C) the cost pool is considered a homogeneous cost pool
D) the cost pool is considered contains only direct variable costs

Accepted Answer

When individual activities within a cost pool have a similar relationship with the cost driver, the cost pool is considered a homogeneous cost pool. This means that the costs accumulated in the cost pool have similar characteristics and can be allocated using a single cost driver. This makes it easier to allocate costs to customers and perform customer-profitability analysis. There is no need for multiple cost drivers or the assumption that the cost pool only contains direct variable costs.

Quiz 14: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

To allocate corporate costs to divisions, the ideal situation would be for the allocation base to ________.

NOT allocating some corporate costs to divisions and products results in which of the following?

Which of the following is true about the process of making cost allocations?

Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled.

When the cost pools are homogeneous which of the following will be true?

When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources.

While allocating corporate costs to divisions ________.

Companies that want to calculate the full cost of products must allocate all corporate costs to divisions.

Corporate brand advertising and general administration costs are examples of corporate costs.

In cost allocation, R&D costs are used to ________.

Homogeneous cost pool leads to which of the following?

Corporate administrative costs allocated to a division cost pool are most likely to be ________.

If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately.

Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base.

When individual activities within a cost pool have a similar relationship with the cost driver, which of the following could be said about the cost pool?