Practice Question 1 The process of assigning direct costs is referred to as cost allocation. True False

Practice Question 2 Which one of the following costs would most likely be allocated to products by a toy truck manufacturer? Wages of workers that assemble the trucks. Production supervisors salary. Cost of the wheels. Costs to advertise toy trucks on television.

Practice Question 3 Which one of the following is not one of major reasons that companies allocate costs? To reduce total manufacturing overhead costs To reduce the frivolous use of common resources To determine the proper costing for GAAP purposes To encourage managers to evaluate the efficiency of services provided

Practice Question 4 Which one of the following is one of major reasons that companies allocate costs? To encourage frivolous use of common resources To distribute direct costs to products To encourage managers to evaluate the efficiency of services provided To increase profits

Practice Question 5 In most manufacturing units, the organizational units can be classified as either production departments or service departments. True False

Practice Question 6 From a decision-making standpoint, the allocated cost should measure the sunk cost of using a company resource. True False

Practice Question 7 The overriding concern in forming a cost pool is to ensure that the costs in the pool are the same type of cost, such as only salaries or only depreciation costs. True False

Practice Question 8 It is generally a good idea to allocate __________rather than ____________service department costs. uncontrollable, actual budgeted, direct budgeted, actual variable, actual

Practice Question 9 It is generally a good idea to allocate __________rather than ____________service department costs. uncontrollable, actual budgeted, actual variable, actual budgeted, direct

Practice Question 10 Oscar Company estimated the following costs and activities for October: Cost Activity Machine setups $36,600 400 setups Utilities $60,000 20,000 usage hours Materials handling $83,940 13,990 crates Direct labor $35,400 $20 per labor hour Direct material $60,000 $1 per pound Direct labor cost is $20 per hour. The following information pertains to the actual production of brackets and hinges during October: Brackets Hinges Units produced 60,000 39,844 Direct material cost incured $30,000 $31,200 Direct labor cost incured ($20/hour) $24,000 $10,000 Setups implemented 120 290 Crates handled 6,800 5,200 Utility hours used 80,000 125,000 How much is the overhead cost per hinge if Oscar uses a traditional cost system and applies overhead based on direct labor cost using only one cost pool? $0.25 $5.10 $4.53 $1.28

Practice Question 11 Dorrel Company estimated the following costs and activities for October: Cost Activity Machine setups $33,600 400 setups Utilities $60,000 20,000 usage hours Materials handling $84,000 12,500 crates Direct labor $35,520 $20 per labor hour Direct material $60,000 $1 per pound Direct labor cost is $20 per hour. The following information pertains to the actual production of brackets and hinges during October: Brackets Hinges Units produced 60,000 40,000 Direct material cost incured $30,000 $31,200 Direct labor cost incured ($20/hour) $24,000 $12,000 Setups implemented 120 290 Crates handled 6,800 5,200 Utility hours used 80,000 125,000 Which items are cost pools? Number of machine setups, number of usage hours of utilities, number of crates handled, amount of direct labor cost Machines setups, utilities, material handling Brackets and hinges Direct material cost incurred, direct labor cost incurred, setups implemented, crates handled, utility hours used

Practice Question 12 Dorrel Company estimated the following costs and activities for October: Cost Activity Machine setups $33,600 400 setups Utilities $60,000 20,000 usage hours Materials handling $84,000 12,500 crates Direct labor $35,520 $20 per labor hour Direct material $60,000 $1 per pound Direct labor cost is $20 per hour. The following information pertains to the actual production of brackets and hinges during October: Brackets Hinges Units produced 60,000 40,000 Direct material cost incured $30,000 $31,200 Direct labor cost incured ($20/hour) $24,000 $12,000 Setups implemented 120 290 Crates handled 6,800 5,200 Utility hours used 80,000 125,000 Which items are cost objectives? Brackets and hinges Direct material cost incurred, direct labor cost incurred, setups implemented, crates handled, utility hours used Machines setups, utilities, material handling Number of machine setups, number of usage hours of utilities, number of crates handled, amount of direct labor cost

Practice Question 13 Which of the following would be the most equitable method of allocating purchasing department costs incurred by a company? Number of employees hired Number of purchase orders Number of direct labor hours incurred Pounds of materials ordered

Practice Question 14 Which of the following is likely to be a cost allocation basis for utility costs related to the shoe department of Macys? Square footage Number of pairs of shoes sold Number of customers that bought at least one product Amount of sales

Practice Question 15 Activity-based management aims at improving the efficiency and effectiveness of business processes. True False

Practice Question 16 Jorgenson, Inc. has 2 departmentssorting and molding. The payroll and IT departments provide services for the production departments and all other service departments. Payroll is allocated based on number of employees and IT is allocated based on number of computer stations. Jorgenson provided the following information concerning its departments for January: Cost # of Square Computer # of Department Incurred Employees Feet Stations Labour Hours Sorting $58,000 40 3,000 8 20,000 Molding $84,000 20 4,500 2 10,000 IT $50,000 15 1,000 12 3,000 Payroll $36,000 25 1,500 8 7,000 How much service cost will be allocated to the sorting department using the direct method? $64,000 $40,000 $24,000 $68,800

Practice Question 17 Henry Company allocates costs from its accounting department and housekeeping departments to the mixing, chopping, and baking departments. Accounting department costs are allocated based on the number of employees and housekeeping costs are allocated based on the number of square feet used. Department information follows presented below: Department Costs Number of Employees Number of Square Feet Accounting $60,000 2 7,200 Housekeeping $24,000 6 800 Mixing $88,000 24 4,000 Chopping $66,000 28 12,000 Baking $34,000 12 16,000 Henry uses the direct method of cost allocation. How much total service cost will be allocated to the baking department? $84,000 $15,750 $42,000 $23,250

Practice Question 18 Henry Company allocates costs from its accounting department and housekeeping departments to the mixing, chopping, and baking departments. Accounting department costs are allocated based on the number of employees and housekeeping costs are allocated based on the number of square feet used. Department information follows presented below: Department Costs Number of Employees Number of Square Feet Accounting $60,000 2 7,200 Housekeeping $24,000 6 800 Mixing $88,000 24 4,000 Chopping $66,000 28 12,000 Baking $34,000 12 16,000 Henry uses the direct method of cost allocation. How much total service cost will be allocated to the mixing department? $25,500 $84,000 $42,000 $15,750

Practice Question 19 Slug Busters, Inc. has 2 departmentschemicals and compounding. The maintenance and payroll departments provide services for both the production and service departments. Payroll is allocated based on number of employees and maintenance is allocated based on number of maintenance calls. The company provided the following information concerning its departments for the month: Department Cost Incurred # of Employees # of Maintenance Calls # of Labor Hours Chemicals $80,000 30 36 4,800 Compounding $65,000 10 14 3,200 Payroll $45,000 15 8 1,000 Maintenance $35,000 25 17 1,000 How much service cost will be allocated to the compounding department using the direct method? $16,000 $9,800 $21,050 $11,250

Practice Question 20 Cost allocations affect the amount of profit reported on managers performance reports. True False

Practice Question 21 Which one of the following is a potential problem with cost allocation? It uses allocation bases which are not volume-related. It encourages the evaluation of services. Controllable costs may be allocated to managers. Allocations may make fixed costs appear to be variable.

Practice Question 22 In understanding cost allocations, which of the following statements is false? In using too few cost pools, product costs may be seriously distorted. In a lump-sum allocation, the costs are perceived as fixed costs. Lump-sum allocations make variable costs appear to be fixed in nature. In unitizing fixed costs, managers are better able to understand the costs.

Practice Question 23 Which one of the following is a potential problem with cost allocation? Budgeted service costs are allocated to managers. Costs that are controllable may be allocated to managers using multiple cost pools. Lump sum allocations may occur. Fixed costs may appear unitized to managers.

Practice Question 24 Which one of the following is a potential problem with cost allocation? Too many cost pools may be used. It encourages the evaluation of services. It uses allocation bases which are not volume-related. Only volume-based activity may be used because it is less costly.

Practice Question 25 An ABC system is less likely to undercost complex, low volume products and overcost simple, high volume products. True False

Practice Question 26 Which allocation method(s) is/are used to allocate indirect departmental costs to products? Direct method and ABC. ABC and traditional methods. Traditional and direct methods. Only ABC.

Practice Question 27 Which of the following is most likely to be a cost driver for janitorial costs? Square footage occupied. Number of products sold to customers. Satisfaction of customers. Direct labor hours used.

Practice Question 28 Activity-based costing is more cost effective than a traditional costing system. utilized to develop incremental revenues and costs for decision making. used to develop the full cost of products. utilized with one cost pool.

Practice Question 29 Which one of the following is a benefit of ABC for managers? It is less likely that ABC will overcost complex, low-volume products and undercost simple, high-volume products. Its use in determining full costs helps with internal decision making. It often leads to cost control improvements. It more expensive that traditional costing systems.

Practice Question 30 Oscar Company estimated the following costs and activities for October: Cost Activity Machine setups $36,600 400 setups Utilities $60,000 200,000 usage hours Materials handling $83,940 13,990 crates Direct labor $35,400 $20 per labor hour Direct material $60,000 $1 per pound Direct labor cost is $20 per hour. The following information pertains to the actual production of brackets and hinges during October: Brackets Hinges Units produced 60,000 39,844 Direct material cost incured $30,000 $31,200 Direct labor cost incured ($20/hour) $24,000 $10,000 Setups implemented 120 290 Crates handled 6,800 5,200 Utility hours used 80,000 125,000 How much is the overhead cost per hinge if Oscar uses ABC? $97.80 $1.59 $2.39 $1.28

Practice Question 31 Barton Company produces two products, Rip and Torn. Overhead has traditionally been allocated on the basis of direct labor hours. Direct labor has a budgeted cost of $13 per labor hour and 8,800 direct labor hours. Barton recently set up three activity centers to implement ABC costing. Information concerning this follows: Estimated Cost Rip Activity Torn Activity Materials handling $29,000 350 requisitions 150 requisitions Assembly $120,000 15,400 square feet 4,600 square feet Tech support $75,000 70 service calls 80 service calls Direct labor $114,400 2.4 hours per unit 1.6 hours per unit Estimated units 1,000 units 4,000 units How much overhead will be allocated to the Torn under ABC? $224,000 $52,393 $76,300 $270,720

Practice Question 32 Freeze, Inc. produces two products, Icy and Hot. The company produces and sells 2,000 Icy and 3,000 Hot products every year. The company has traditionally used direct labor cost to apply manufacturing overhead. The company has decided to utilize activity-based costing with three cost pools. Estimated costs for each pool are as follows: Estimated Costs Overhead Costs Icy Product Expected Activity Hot Product Expected Activity Material handling $50,000 600 deliveries 400 deliveries Factory occupancy $36,000 2,200 square feet 1,800 square feet Maintenance $10,000 130 repairs 70 repairs Direct labor $60,000 $36,000 $24,000 How much is the total overhead cost allocated to Hot product using activity-based costing? $50,000 $62,400 $39,700 $19,200

Practice Question 33 ABM focuses on activities with the goal of measuring the costs of products and services produced by them. True False

Practice Question 34 Which one of the following is a goal of activity based management (ABM)? To improve the efficiency and effectiveness of costing activities. To allocate indirect costs to products and services. To allocate all costs to products and services. To determine the full cost of products.

Practice Question 35 Which one of the following is a true statement? The direct method allocates service department costs to both production and other service departments. ABM recognizes that costs are caused by activities. ABC is a method of activity analysis aimed at improving the efficiency and effectiveness of business processes. ABC allocates manufacturing overhead costs to cost objectives.

Practice Question 36 One difference between ABC and ABM is that ABC is used to allocate indirect costs to products, while ABM is the management of information provided by the ABC system. focuses on reducing total costs incurred by the company, while ABM determines if costs are reduced. is used to allocate service costs and ABM is used to allocate product costs. focuses on activities with the goal of measuring costs of products and services produced, while ABM determines what activities should be used in ABC.

Practice Question 37 The last step of the ABM process is to: identify ways to improve the efficiency and/or effectiveness of the activities. identify the resources used by each activity. evaluate the performance of the activities. determine major activities.

Practice Question 38 Which statement is true about ABC and ABM? ABC is the management of information provided by the ABM system. ABM has the goal of improving efficiency and effectiveness of activity. ABC allocates direct and indirect costs to products and services. ABC analyzes and costs activities with the goal of improvement.

Practice Question 39 Which of the following is not a step involved with conducting an ABM study? Increase the resources available to each activity. Determine major activities. Identify the resources used by each activity. Evaluate the performance of the activities.