Management Accounting 6th Canadian Edition Horngren Test Bank

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Management Accounting 6th Canadian Edition Horngren Test Bank

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Management Accounting, Cdn. 6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 5 Cost Allocation and Activity-Based Costing Systems

1) The goal of a cost accounting system is to measure the cost of developing, producing, selling and distributing particular products or services.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

2) The direct method of allocating service department costs partially recognizes services that service departments provide to each other.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 169
Objective: 5

3) The reciprocal method of allocating service department costs fully recognizes services that service departments provide to each other.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 169
Objective: 5

4) Direct-labour hours are not a very good measure of the cause of costs in modern, highly automated departments.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

5) Producing departments are responsible for producing the products sold to customers.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

6) Service departments are responsible for providing services directly to customers.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

7) Accounting is an example of a producing department.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

8) Maintenance is an example of a service department.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

9) The company cafeteria is an example of a producing department.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

10) Packaging is an example of a service department.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

11) One of the main objectives of cost allocation is to motivate managers.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

12) One of the main objectives of cost allocation is to value inventory.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 162
Objective: 1

13) Actual costs should always be used when allocating service department costs.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 164
Objective: 2

14) Service department costs should be allocated directly to units of product.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 164
Objective: 2

15) If the allocation is for performance evaluation, variable service department costs should be allocated based on the actual rate and actual usage.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 164
Objective: 2

16) The goal of activity-based costing is to trace costs to products or services instead of arbitrarily allocating them.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 175
Objective: 8

17) The cost pool should be a quantifiable measure of what causes costs.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 201
Objective: 5

18) In activity-based costing, costs are classified as either direct or indirect.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 169
Objective: 5

19) Activity-based accounting systems classify more costs as direct, thus simplifying and reducing the cost of a traditional system.
Answer: FALSE
Diff: 1 Type: TF Page Ref: 210

20) The goal of a just-in-time production system is to have zero inventory.
Answer: TRUE
Diff: 1 Type: TF Page Ref: 214
Objective: 7

21) A group of individual costs that is allocated to cost objectives using a single cost driver is known as a
A) cost allocation base.
B) cost pool.
C) joint cost.
D) by-product.
Answer: B
Diff: 1 Type: MC Page Ref: 162
Objective: 1

22) Costs are allocated for all the following purposes EXCEPT to
A) predict the economic effects of planning and control decisions.
B) obtain desired motivation.
C) determine the sales volume.
D) compute income and asset valuation.
Answer: C
Diff: 1 Type: MC Page Ref: 162
Objective: 1

23) Which of the following is NOT a type of cost allocation?
A) Allocation of costs to the appropriate organizational unit
B) Reallocation of costs from service departments to production departments
C) Allocation of costs of a particular organizational unit to products or services
D) Reallocation of costs from production departments to service departments
Answer: D
Diff: 1 Type: MC Page Ref: 161
Objective: 1

24) The preferred guidelines for allocating service department costs include all of the following EXCEPT
A) identify the direct and indirect costs.
B) evaluate performance using budgets for each service department.
C) establish part or all of the details regarding cost allocation in advance of rendering the service.
D) allocate variable- and fixed-cost pools separately.
Answer: A
Diff: 1 Type: MC Page Ref: 164
Objective: 1

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:

Mixing Finishing
Long-run capacity available* 12,000 12,000
Budgeted* 8,000 7,000
Actual* 10,000 6,000

Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.

*in labour hours

25) The amount of fixed maintenance costs allocated to the Mixing Department should be
A) $13,333.
B) $8,000.
C) $12,000.
D) $9,333.
Answer: C
Diff: 2 Type: MC Page Ref: 191
Objective: 1

26) The amount of fixed maintenance costs allocated to the Finishing Department should be
A) $12,000.
B) $ 8,000.
C) $ 9,333.
D) $ 7,500.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

27) The amount of variable maintenance costs allocated to the Mixing Department should be
A) $30,000.
B) $36,000.
C) $24,000.
D) $31,250.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5
28) The amount of variable maintenance costs allocated to the Finishing Department should be
A) $21,000.
B) $24,000.
C) $18,750.
D) $18,000.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:

Cutting Assembling
Long-run capacity available* 48,000 32,000
Budgeted* 32,000 28,000
Actual* 40,000 24,000

Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.

*in labour hours

29) The amount of fixed maintenance costs allocated to the Cutting Department should be
A) $40,000.
B) $24,000.
C) $36,000.
D) $28,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

30) The amount of fixed maintenance costs allocated to the Assembling Department should be
A) $36,000.
B) $24,000.
C) $28,000.
D) $22,500.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

31) The amount of variable maintenance costs allocated to the Cutting Department should be
A) $80,000.
B) $96,000.
C) $64,000.
D) $83,333.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5
32) The amount of variable maintenance costs allocated to the Assembling Department should be
A) $56,000.
B) $64,000.
C) $50,000.
D) $48,000.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

33) To allocate central costs, a company could use all of the following cost drivers EXCEPT the
A) revenue of each division.
B) cost of goods sold by each division.
C) total assets of each division.
D) total period costs of each division.
Answer: D
Diff: 1 Type: MC Page Ref: 169
Objective: 5

Stohr Company has two departments, New and Old. Central costs are allocated to the two departments in various ways. Relevant information is presented below:

New Old
Square footage 4,000 12,000
Number of employees 560 240
Sales $800,000 $4,000,000

34) If total advertising expense is $240,000 and it is allocated on the basis of sales, the amount allocated to the New Department should be
A) $40,000.
B) $60,000.
C) $168,000.
D) $200,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5

35) If total advertising expense is $120,000 and it is allocated on the basis of sales, the amount allocated to the Old Department should be
A) $90,000.
B) $36,000.
C) $100,000.
D) $ 20,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

36) If total payroll processing costs are $64,000 and they are allocated on the basis of number of employees, the amount allocated to the New Department should be
A) $44,800.
B) $16,000.
C) $10,667.
D) $19,200.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5

37) If total payroll processing costs are $40,000 and they are allocated on the basis of number of employees, the amount allocated to the Old Department should be
A) $28,000.
B) $12,000.
C) $30,000.
D) $33,333.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

38) If total rent expense is $80,000 and it is allocated on the basis of square footage, the amount allocated to the New Department should be
A) $13,333.
B) $20,000.
C) $56,000.
D) $60,000.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

39) If total rent expense is $192,000 and it is allocated on the basis of square footage, the amount allocated to the Old Department should be
A) $57,600.
B) $160,000.
C) $144,000.
D) $48,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

40) Which of the following departments is NOT a service department?
A) Facilities management
B) Personnel
C) Accounting
D) Finishing
Answer: D
Diff: 1 Type: MC Page Ref: 161
Objective: 1
41) A method for allocating service department costs that ignores other service departments when any given service departments costs are allocated to the revenue-producing departments is called the
A) direct method.
B) indirect method.
C) step-down method.
D) step-up method.
Answer: A
Diff: 1 Type: MC Page Ref: 169
Objective: 5

42) In the step-down method, the last service department in the sequence is the one that renders the
A) most service to all other service departments.
B) most service to the least number of other service departments.
C) least service to the least number of other service departments.
D) least service to the most other service departments.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

43) The greatest virtue of the direct method is
A) its simplicity.
B) the lack of understandability by managers.
C) the recognition of reciprocal relationships between service departments.
D) its ability to allocate production department costs to service departments.
Answer: A
Diff: 1 Type: MC Page Ref: 169
Objective: 5

City Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:

Maintenance Personnel Mixing Finishing
Direct dept. costs $18,000 $12,000 $15,000 $25,000
Sq. footage 800 400 1,600 1,200
No. of employees 8 12 24 32

44) If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation would be
A) $30,429.
B) $10,286.
C) $5,143.
D) $15,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5
45) If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be
A) $7,714.
B) $6,858.
C) $39,571.
D) $25,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

46) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is
A) $5,143.
B) $6,107.
C) $6,000.
D) $9,000.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

47) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $6,107.
B) $4,500.
C) $8,143.
D) $6,750.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

48) If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing is
A) $4,500.
B) $8,357.
C) $9,000.
D) $11,143.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

49) If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing is
A) $6,000.
B) $8,357.
C) $6,750.
D) $8,142.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

50) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total cost of the Mixing Department after allocation would be
A) $30,107.
B) $30,642.
C) $30,428.
D) $15,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5

51) If the step-down method is used to allocate costs, and the Personnel Department renders the greatest service, then the total cost of the Finishing Department after allocation would be
A) $25,000.
B) $39,572.
C) $39,892.
D) $39,357.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

County Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:

Maintenance Personnel Mixing Finishing
Direct dept. costs $72,000 $48,000 $60,000 $100,000
Sq. footage 3,200 1,600 6,400 4,800
No. of employees 32 48 96 128

52) If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation would be
A) $121,714.
B) $41,143.
C) $20,571.
D) $60,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5
53) If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be
A) $30,857.
B) $27,429.
C) $158,286.
D) $100,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

54) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is
A) $20,572.
B) $24,429.
C) $24,000.
D) $36,000.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

55) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $24,429.
B) $18,000.
C) $32,571.
D) $27,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

56) If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing is
A) $18,000.
B) $33,428.
C) $36,000.
D) $44,571.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5
57) If the step-down method of allocating costs is used, and the Personnel Department renders the greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing is
A) $24,000.
B) $33,429.
C) $27,000.
D) $32,568.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

58) If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total cost of the Mixing Department after allocation would be
A) $120,429.
B) $122,571.
C) $121,712.
D) $ 60,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5

59) If the step-down method is used to allocate costs, and the Personnel Department renders the greatest service, then the total cost of the Finishing Department after allocation would be
A) $100,000.
B) $158,288.
C) $159,571.
D) $157,429.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

60) Which of the following is the least likely alternative to be used to allocate costs?
A) Use a different cost driver for each cost pool.
B) Allocate all costs evenly to all other departments.
C) Allocate some cost pools using cost drivers and leave other cost pools unallocated.
D) Use one cost driver to allocate all department costs.
Answer: B
Diff: 1 Type: MC Page Ref: 169
Objective: 5

61) Another term for cost application is
A) cost pool.
B) cost driver.
C) cost objective.
D) cost attribution.
Answer: D
Diff: 1 Type: MC Page Ref: 185
Objective: 1
62) Each of the following is a step in the general approach to allocating costs to final products or services EXCEPT
A) select one or more cost drivers in each production department.
B) allocate production-related costs to the operating line.
C) apply the total costs allocated to the production department to the output of the department using cost drivers.
D) identify production costs as either direct or indirect.
Answer: D
Diff: 1 Type: MC Page Ref: 185
Objective: 1

63) One conventional way of allocating joint costs to products is the
A) relative sales value method.
B) direct method.
C) indirect method.
D) abc method.
Answer: A
Diff: 1 Type: MC Page Ref: 172

64) Which of the following statements regarding by-products is FALSE?
A) A by-product is not individually identifiable until the split-off point.
B) A by-product is the same as a joint product.
C) By-products have relatively insignificant total sales value.
D) Only separable costs are allocated to by-products.
Answer: B
Diff: 1 Type: MC Page Ref: 172

Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to $350,000. The following data are also available:

Product Units Produced Sales Value at
Split-off
W 44,000 $128,000
X 28,000 $104,000
Y 70,000 $142,000
Z 58,000 $126,000

65) Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product W would be
A) $120,312.
B) $62,858.
C) $122,500.
D) $77,000.
Answer: D
Diff: 2 Type: MC Page Ref: 173
Objective: 7
66) Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product X would be
A) $94,230.
B) $72,800.
C) $122,500.
D) $49,000.
Answer: D
Diff: 2 Type: MC Page Ref: 173
Objective: 7

67) Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product Y would be
A) $172,536.
B) $99,400.
C) $122,500.
D) $24,648.
Answer: C
Diff: 2 Type: MC Page Ref: 173
Objective: 7

68) Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to product Z would be
A) $101,500.
B) $89,600.
C) $161,111.
D) $82,858.
Answer: A
Diff: 2 Type: MC Page Ref: 173
Objective: 7

69) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product W would be
A) $89,600.
B) $120,312.
C) $77,000.
D) $50,400.
Answer: A
Diff: 2 Type: MC Page Ref: 173
Objective: 7
Bare Company manufactures four products from a joint process. Joint costs for the year amounted to $140,000. The following data are also available:

Product Units Produced Sales Value at
Split-off
B 4,400 $64,000
A 2,800 $52,000
R 7,000 $71,000
E 5,800 $63,000

70) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product B would be
A) $35,840.00.
B) $48,124.80.
C) $30,800.00.
D) $20,160.00.
Answer: A
Diff: 2 Type: MC Page Ref: 173
Objective: 7

71) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product A would be
A) $19,600.
B) $37,692.
C) $29,120.
D) $16,640.
Answer: C
Diff: 2 Type: MC Page Ref: 173
Objective: 7

72) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product R would be
A) $49,000.00.
B) $39,760.00.
C) $69,014.40.
D) $22,720.00.
Answer: B
Diff: 2 Type: MC Page Ref: 173
Objective: 7

73) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated to product E would be
A) $40,600.00.
B) $64,444.40.
C) $58,000.00.
D) $35,280.00.
Answer: D
Diff: 2 Type: MC Page Ref: 173
Objective: 7
74) Activity-based costing is also known as
A) transaction-based costing.
B) motivation-based costing.
C) objective-based costing.
D) variable-based costing.
Answer: A
Diff: 2 Type: MC Page Ref: 175
Objective: 7

75) Which of the following is NOT likely to be a cost driver?
A) Production orders
B) Material requisitions
C) Cost accountants labour hours
D) Product inspections
Answer: C
Diff: 1 Type: MC Page Ref: 175
Objective: 7

76) Which of the following is NOT likely to be an activity in an activity-based costing system?
A) Materials handling
B) Inspection
C) Accounting
D) Assembly
Answer: C
Diff: 1 Type: MC Page Ref: 175
Objective: 7

Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

Product Number of
Setups Number of
Components Number of
Orders
Standard 12 8 440
Deluxe 16 14 750
Costs per pool
$30,000 $76,000 $14,000

77) If activity-based costing is used, then the product setup cost for the standard model would be
A) $12,857.
B) $17,143.
C) $1,071.
D) $1,866.
Answer: C
Diff: 2 Type: MC Page Ref: 175
Objective: 7
78) If activity-based costing is used, then the total cost of the components used in the deluxe model would be
A) $3,455.
B) $27,636.
C) $48,364.
D) $76,000.
Answer: C
Diff: 2 Type: MC Page Ref: 175
Objective: 7

79) If activity-based costing is used, then the total amount of overhead allocated to the standard model would be
A) $74,330.
B) $120,000.
C) $40,000.
D) $45,670.
Answer: D
Diff: 2 Type: MC Page Ref: 175
Objective: 7
80) If activity-based costing is used, then the total amount of overhead allocated to the deluxe model would be
A) $45,670.
B) $74,330.
C) $120,000.
D) $ 80,000.
Answer: B
Diff: 2 Type: MC Page Ref: 175
Objective: 7

Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

Product Number of
Setups Number of
Components Number of
Orders
Standard 48 32 1,760
Deluxe 64 56 3,000
Costs per pool
$120,000 $304,000 $56,000

81) If activity-based costing is used, then the product setup cost for the standard model would be
A) $51,429.
B) $68,571.
C) $1,071.
D) $120,000.
Answer: A
Diff: 2 Type: MC Page Ref: 175
Objective: 7
82) If activity-based costing is used, then the total cost of the components used in the deluxe model would be
A) $3,455.
B) $110,545.
C) $193,455.
D) $304,000.
Answer: C
Diff: 2 Type: MC Page Ref: 175
Objective: 7

83) If activity-based costing is used, then the total amount of overhead allocated to the standard model would be
A) $297,320.
B) $480,000.
C) $160,000.
D) $182,680.
Answer: D
Diff: 2 Type: MC Page Ref: 175
Objective: 7

84) If activity-based costing is used, then the total amount of overhead allocated to the deluxe model would be
A) $182,680.
B) $297,320.
C) $480,000.
D) $320,000.
Answer: B
Diff: 2 Type: MC Page Ref: 175
Objective: 7

85) Activity-based accounting systems
A) accumulate overhead costs by department.
B) can turn many indirect overhead costs into direct costs.
C) are less complex and therefore less costly than traditional systems.
D) can be used in manufacturing firms only.
Answer: B
Diff: 1 Type: MC Page Ref: 175
Objective: 7

86) Which of the following statements is FALSE?
A) Activity-based accounting systems classify more costs as indirect than do traditional systems.
B) Activity-based accounting systems can create more accurate product costs.
C) Activity-based accounting systems are more complex and costly than traditional systems.
D) Activity-based accounting systems are used in both manufacturing and nonmanufacturing industries.
Answer: A
Diff: 1 Type: MC Page Ref: 175
Objective: 7
87) Which of the following is NOT a name for a system that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity?
A) Activity-based accounting
B) Cost-driver accounting
C) Transaction-based accounting
D) Transaction costing
Answer: B
Diff: 1 Type: MC Page Ref: 175
Objective: 7
John Gordan Company had the following activities, traceable costs, and physical flow of driver units:

Activities Traceable
Costs Physical Flow of
Driver Units
Account inquiry (hours) $ 200,000 5,000 hours
Account billing (lines) 140,000 2,000,000 lines
Account verification (accounts) 75,000 20,000 accounts
Correspondence (letters) 25,000 2,000 letters

The above activities are used by departments A and B as follows:

A
B
Account inquiry (hours) 1,000 hours 2,000 hours
Account billing (lines) 200,000 lines 100,000 lines
Account verification (accounts) 5,000 accounts 4,000 accounts
Correspondence (letters) 500 letters 800 letters

88) What is the cost per driver unit for the account inquiry activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: A
Diff: 2 Type: MC Page Ref: 180
Objective: 9

89) What is the cost per driver unit for the account billing activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: B
Diff: 2 Type: MC Page Ref: 180
Objective: 9
90) What is the cost per driver unit for the account verification activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: C
Diff: 2 Type: MC Page Ref: 180
Objective: 9

91) What is the cost per driver unit for the correspondence activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: D
Diff: 2 Type: MC Page Ref: 180
Objective: 9

92) How much of the account inquiry cost will be assigned to Department A?
A) $40,000
B) $200,000
C) $80,000
D) None of the above
Answer: A
Diff: 2 Type: MC Page Ref: 180
Objective: 9

93) How much of the account billing cost will be assigned to Department B?
A) $14,000
B) $140,000
C) $7,000
D) None of the above
Answer: C
Diff: 2 Type: MC Page Ref: 180
Objective: 9

94) How much of the correspondence cost will be assigned to Department B?
A) $5,000
B) $8,000
C) $25,000
D) None of the above
Answer: D
Diff: 2 Type: MC Page Ref: 180
Objective: 9

Allen Crabb Corporation had the following activities, traceable costs, and physical flow of driver units:

Activities Traceable
Costs Physical Flow of
Driver Units
Account inquiry (hours) $400,000 5,000 hours
Account billing (lines) 280,000 2,000,000 lines
Account verification (accounts) 150,000 20,000 accounts
Correspondence (letters) 50,000 2,000 letters

The above activities are used by departments X and Y as follows:

X Y
Account inquiry (hours) 500 hours 800 hours
Account billing (lines) 250,000 lines 200,000 lines
Account verification (accounts) 2,000 accounts 1,000 accounts
Correspondence (letters) 200 letters 1,000 letters

95) How much of the correspondence cost will be assigned to Department X?
A) $5,000
B) $50,000
C) $25,000
D) None of the above
Answer: A
Diff: 2 Type: MC Page Ref: 180
Objective: 9

96) How much of the account inquiry cost will be assigned to Department Y?
A) $400,000
B) $40,000
C) $64,000
D) $104,000
Answer: C
Diff: 2 Type: MC Page Ref: 180
Objective: 9

97) How much of the account verification cost will be assigned to Department Y?
A) $150,000
B) $7,500
C) $15,000
D) $22,500
Answer: B
Diff: 2 Type: MC Page Ref: 180
Objective: 9

98) A cost-management system
A) first measures the resources used by each department.
B) assesses the effects of changes in costs on the departments.
C) identifies how managements decisions affect costs.
D) distinguishes between product costs and period costs.
Answer: C
Diff: 2 Type: MC Page Ref: 162
Objective: 1

Use the following information to answer item(s) below.

Meesen Inc. operates two support departments (A and B) and two producing departments (C and D). Budgeted costs and normal activity levels are given below.

Support Departments Producing Departments
A B C D
Overhead costs $120,000 $160,000 $300,000 $240,000
Number of employees 8 12 40 60
Maintenance hours 3,000 400 8,000 2,000
Machine hours 12,000 1,500
Labour hours 1,800 15,000

The costs of Department A are allocated on the basis of number of employees, and the costs of Department B are allocated on the basis of maintenance hours.

99) If the direct method is used, Department A costs allocated to Department C would be
A) $48,000.
B) $96,000.
C) $72,000.
D) $120,000.
Answer: A
Diff: 2 Type: MC Page Ref: 169
Objective: 5

100) If the direct method is used, Department B costs allocated to Department C would be
A) $192,000.
B) $160,000.
C) $128,000.
D) $180,000.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

101) If Department C uses machine hours to allocate overhead to units of product, the overhead rate per machine hour for Department C would be
A) $35.67.
B) $29.00.
C) $32.66.
D) $39.67.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

102) If Department D uses direct labour hours to allocate overhead to units of product, the overhead rate per direct labour hour for Department D would be
A) $22.93.
B) $18.13.
C) $16.80.
D) $16.00.
Answer: A
Diff: 2 Type: MC Page Ref: 193
Objective: 1

103) Estimates relating to a job that Meesen Inc. plans to bid on are as follows:

Direct materials $1,000
Direct labour $ 600
Machine hours in Department C 20
Direct labour hours in Department D 30

The estimate for the cost of the job would be
A) $2,393.
B) $2,288.
C) $1,481.
D) $3,081.
Answer: D
Diff: 2 Type: MC Page Ref: 169
Objective: 5

104) If the step-down method is used and the costs of the service department with the greatest total cost are allocated first, Department B costs allocated to Department D would be
A) $36,923.
B) $30,463.
C) $24,615.
D) $21,450.
Answer: C
Diff: 2 Type: MC Page Ref: 169
Objective: 5

105) If the step-down method is used, Department A costs allocated to Department C would be
A) $60,649.
B) $62,769.
C) $62,980.
D) $69,280.
Answer: B
Diff: 2 Type: MC Page Ref: 169
Objective: 5

106) The necessary cost of an activity that cannot be eliminated without affecting a products value to the customer is a
A) period cost.
B) product cost.
C) prime cost.
D) value-added cost.
Answer: D
Diff: 1 Type: MC Page Ref: 169
Objective: 5

107) Which of the following is NOT an example of a non-value-added cost?
A) Receiving inventory
B) Transporting work-in-process
C) Warehousing inventory
D) Assembling raw materials
Answer: D
Diff: 1 Type: MC Page Ref: 169
Objective: 5

108) In a just-in-time production system,
A) customer orders drive the production process.
B) an organization purchases materials in large quantities in order to receive quantity discounts.
C) goods are produced ahead of time to protect against stockouts.
D) inventory levels are maintained as high as possible.
Answer: A
Diff: 1 Type: MC Page Ref: 186
Objective: 12

109) The time from initiating production to delivering the goods to the customer is referred to as
A) just-in-time.
B) non-value-added time.
C) production cycle time.
D) cost measuring time.
Answer: C
Diff: 1 Type: MC Page Ref: 186
Objective: 12

110) Which of the following is NOT a factor to the success of just-in-time systems?
A) The focus on quality
B) Inflexible production operations
C) Short production cycle times
D) Smooth flow of production
Answer: B
Diff: 1 Type: MC Page Ref: 186
Objective: 12

111) Two dimensions are important in flexible production operations:
A) material flexibility and employee flexibility.
B) employee flexibility and facilities flexibility.
C) supplier flexibility and customer flexibility.
D) facilities flexibility and supplier flexibility.
Answer: B
Diff: 1 Type: MC Page Ref: 186
Objective: 12

112) The techniques used to determine the cost of a product or service by collecting and classifying costs and assigning them to cost objectives.
Answer: Cost accounting system
Diff: 1 Type: SA Page Ref: 162
Objective: 1

113) A system that first accumulates overhead costs for each of the activities of an organization, and then assigns the costs of activities to the products, services, or other cost objects that caused that activity.
Answer: Activity-based accounting
Diff: 1 Type: SA Page Ref: 175
Objective: 8

114) A unit within an organization responsible for producing the products or services that are sold to customers.
Answer: Producing department
Diff: 1 Type: SA Page Ref: 162
Objective: 1

115) A unit within an organization that provides essential support services for producing departments.
Answer: Service department
Diff: 1 Type: SA Page Ref: 162
Objective: 1

116) A method that simultaneously allocates service costs to all user departments. It gives full consideration to interactions among support departments.
Answer: Reciprocal allocation method
Diff: 1 Type: SA Page Ref: 169
Objective: 5

117) A method of allocating support department costs that gives partial consideration to interactions among support departments.
Answer: Step-down method
Diff: 1 Type: SA Page Ref: 169
Objective: 5

118) A method of allocating service costs that ignores any interactions that may exist among support departments.
Answer: Direct method
Diff: 1 Type: SA Page Ref: 168
Objective: 4

119) Identifies how managements decisions affect costs, by first measuring the resources used in performing the organizations activities and then assessing the effects on costs of changes in those activities.
Answer: Cost-management system
Diff: 1 Type: SA Page Ref: 162
Objective: 1

120) The time from initiating production to delivering the goods to the customer.
Answer: Production cycle time
Diff: 2 Type: SA Page Ref: 186
Objective: 12

121) A system in which an organization purchases materials and parts and produces components just when they are needed in the production process.
Answer: Just-in-time production system
Diff: 1 Type: SA Page Ref: 186
Objective: 12

122) Henry Company has three support departments and two producing departments. Information for each department for 2006 is as follows:

Support Departments Producing Departments

Plant Plant Plant
Administration Maintenance Cafeteria Machining Assembly

Budgeted
overhead
costs $120,000 $100,000 $50,000 $200,000 $400,000

Direct labour
hours 6,000 10,000 4,000 20,000 30,000

Square feet
occupied 2,000 3,000 5,000 35,000 65,000

Number of
employees 5 6 3 15 25

Plant administration costs are allocated based on direct labour hours, plant maintenance costs are allocated based on square footage occupied, and plant cafeteria costs are allocated based on the number of employees.

The company does not divide overhead into fixed and variable components. Predetermined overhead rates for the producing departments are based on direct labour hours.

Allocate the support department costs using the direct method. Next calculate the predetermined overhead rates the producing departments would use to apply overhead to units of product.

Answer:
Support Departments Producing Departments

Plant Plant
admin- Main- Plant
stration tenance Cafeteria Machining Assembly

Budgeted
overhead cost $120,000 $100,000 $50,000 $200,000 $400,000

Allocate Plant
Administration
(20,000/50,000,
30,000/50,000) ($120,000) 48,000 72,000

Allocate Plant
Maintenance
(35,000/100,000,
65,000/100,000) ($100,000) 35,000 65,000

Allocate Plant
Cafeteria (15/40, 25/40) ($50,000) 18,750 31,250

Total Producing
Department
Overhead to Apply $301,750 $568,250

Divided by DLH 20,000 30,000

Predetermined
Overhead $15.0875 $18.9417
Diff: 3 Type: ES Page Ref: 169
Objective: 5

123) Henry Company has three support departments and two producing departments. Information for each department for 2006 is as follows:

Support Departments Producing Departments

Plant Plant Plant
Administration Maintenance Cafeteria Machining Assembly

Budgeted
overhead
costs $120,000 $100,000 $50,000 $200,000 $400,000

Direct labour
hours 6,000 10,000 4,000 20,000 30,000

Square feet
occupied 2,000 3,000 5,000 35,000 65,000

Number of
employees 5 6 3 15 25

Plant administration costs are allocated based on direct labour hours. Allocate the support depart ment costs using the sequential (step) method starting with the support department with the greatest total cost. Then calculate the predetermined overhead rates the producing departments would use to apply overhead to units of product.

Answer:
Support Departments Producing Departments

Plant Plant
Admini- Main- Plant
stration tenance Cafeteria Machining Assembly

Budgeted
overhead cost $120,000 $100,000 $50,000 $200,000 $400,000

Allocate Plant
Administration ($120,000) 18,750 7,500 37,500 56,250
(10/54, 4/64,
20/64, 30/64)

Total Cost in
Plant
Maintenance $118,750

Allocate Plant
Maintenance ($118,750) 5,655 39,583 73,512
(5/105, 35/105, 65/105)

Total Cost in
Plant Cafeteria $63,155

Allocate Plant
Cafeteria ($63,155) 23,683 39,472
(15/40, 25/40)

Total Producing
Department $300,766 569,234
Overhead to
Apply

Divided by DLH 20,000 30,000

Predetermined
Overhead $15.0383 $18.9745
Diff: 3 Type: ES Page Ref: 169
Objective: 5

124) There are three Easy Stay Inns, one in each of the following cities: Britton, Casey, and Sloop.

The central office provides computer services to each of the three motels. Information pertaining to the computer centre and the three motels follows.

Computer
Centre Britton Casey Sloop

Budgeted fixed costs $150,000
Budgeted variable rate
per hour $ 25
Normal usage in hours 1,000 1,200 300

Actual fixed costs $160,000
Actual variable costs $ 70,000
Actual usage in hours 800 1,400 400

a. Using the direct method, allocate the computer centre costs to each motel location to provide information for setting room rates.

b. Using the direct method, allocate the computer centre costs to each motel location assuming the purpose is to evaluate performance.

c. Did the total amount allocated in requirement (B) above differ from the amount of costs incurred by the computer centre?
Answer:
a.
Britton Casey Sloop

Variable costs allocated:
($25 x 1,000 hours) $25,000
($25 x 1,200 hours) $30,000
($25 x 300 hours) $ 7,500

Fixed costs allocated:
[(1,000 hours/2,500 hours) x $150,000] 60,000
[(1,200 hours/2,500 hours) x $150,000] 72,000
[(300 hours/2,500 hours) x $150,000] _______ ________ 18,000

Total costs allocated $85,000 $102,000 $25,500

b.
Britton Casey Sloop
Variable costs allocated:
($25 x 800 hours) $20,000
($25 x 1,400 hours) $35,000
($25 x 400 hours) $10,000

Fixed costs allocated:
[(1,000 hours/2,500 hours) x $150,000] 60,000
[(1,200 hours/2,500 hours) x $150,000] 72,000
[(300 hours/2,500 hours) x $150,000] _______ ________ 18,000

Total costs allocated $80,000 $107,000 $28,000

c. Actual costs incurred by the computer centre equalled $230,000 ($70,000 + $160,000).

To prevent passing inefficiencies of support departments on to other departments, only budgeted support department costs are allocated.

Therefore, only the budgeted computer centre costs of $215,000 were allocated to the three motels.

The $15,000 excess ($230,000 $215,000) is charged to the computer centre.
Diff: 3 Type: ES Page Ref: 169
Objective: 5

125) Netton Bus Lines provides school bus service to two school districts: East and West.

Taylor has one support centre that is responsible for service, maintenance, and cleanup of its buses. The costs of the support centre are allocated to each district on the basis of total kilometres driven.

During the first month of the year, the support centre was expected to spend a total of $100,000. Of this total, $25,000 was viewed as being fixed.

During the month, the support centre incurred actual variable costs of $105,000 and actual fixed costs of $20,000.

The normal and actual kilometres logged by each district are given below:

East West
Normal activity 170,000 80,000
Actual activity 175,000 90,000

a. Compute the predetermined service cost per kilometre driven.

b. Compute the costs that would be allocated at the end of the month to each district for purposes of performance evaluation.

c. Determine the costs of the support centre that were not allocated to the two districts. Why were these costs not allocated to the districts?
Answer:
a. $0.40 ($100,000/250,000)

b.
East West

Variable costs allocated:
($0.30* x 175,000 kilometres) $52,500
($0.30 x 90,000 kilometres) $27,000

Fixed costs allocated:
[(170,000/250,000) x $25,000] 17,000
[(80,000/250,000) x $25,000] _______ 8,000

Total costs allocated $69,500 $35,000

*Budgeted variable costs = $100,000 $25,000 = $75,000
Variable rate per kilometres $75,000/250,000 = $0.30

c. Actual costs incurred $125,000

Total costs allocated
($69,500 + $35,000) 104,500

Unallocated $ 20,500

These costs were not allocated to the districts because the costs were associated with support department inefficiency.
Diff: 3 Type: ES Page Ref: 169
Objective: 5

126) Clark Corp. has three service departments, Chocolate, Caramel, and Nougat, as well as two production departments, Melting and Wrapping. The Chocolate and Caramel department costs are allocated based upon ounces, and the Nougat departments costs based upon pieces. The following information is also available:

Direct Number Number
Department of of
Costs Ounces Pieces
Service departments:
Chocolate $900,000 10,000 8,000
Caramel 760,000 6,400 5,600
Nougat 690,000 7,400 6,200

Production departments:
Melting 260,000 23,000 19,400
Wrapping 170,000 8,400 10,200

Required: Assume the step-down method of allocating costs is used, and the Chocolate department renders the greatest service, with the Caramel department a close second. Determine the amount of each service departments costs that will be allocated to each production department.
Answer:
Chocolate department:
6,400 + 7,400 + 23,000 + 8,400 = 45,200
6,400/45,200 $900,000 = $127,434 Caramel
7,400/45,200 $900,000 = $147,345 Nougat
23,000/45,200 $900,000 = $457,965 Melting
8,400/45,200 $900,000 = $167,257 Wrapping
Caramel department:
$760,000 + $127,434 = $887,434
7,400 + 23,000 + 8,400 = 38,800
7,400/38,800 $887,434 = $169,253 Nougat
23,000/38,800 $887,434 = $526,056 Melting
8,400/38,800 $887,434 = $192,125 Wrapping
Nougat department:
$690,000 + $147,345 + $169,253 = $1,006,598
19,400 + 10,200 = 29,600
19,400/29,600 $1,006,598 = $659,730 Melting
10,200/29,600 $1,006,598 = $346,868 Wrapping
Diff: 3 Type: ES Page Ref: 169
Objective: 5

127) Rogers Company manufactures three products from a joint process. The Disk and the Jet can be sold at split-off, but the Beam must be processed further at a total cost of $36,000. Total joint costs for the year amounted to $1,740,000. Additional data are as follows:

Product Units Produced Sales Price per Unit
Disk 68,500 $11.00
Jet 35,500 $ 8.40
Beam 16,000 $ 6.20

Required: Using the relative-sales-value method of allocating joint costs, determine the joint costs allocated to each product.
Answer:
Disk:
68,500 $11.00 = $753,500

Jet:
35,500 $8.40 = $298,200

Beam:
16,000 $6.20 = $99,200 $36,000 = $63,200

$753,500 + $298,200 + $63,200 = $1,114,900

Disk:
$753,500/$1,114,900 $1,740,000 = $1,175,971

Jet:
$298,200/$1,114,900 $1,740,000 = $465,394

Beam:
$ 63,200/$1,114,900 $1,740,000 = $98,635
Diff: 3 Type: ES Page Ref: 169
Objective: 5

128) Berlau Corp. manufactures two models of its curling iron, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

Number of Number of Number of
Material Product Orders
Product Requisitions Inspections Shipped
Standard 92 46 334
Deluxe 124 62 258
Costs per pool $108,000 $16,400 $206,000

Required: Assuming activity-based costing is used, allocate each cost pool to each model.
Answer:
Number of Material Requisitions:
92 + 124 = 216
92/216 $108,000 = $46,000 Standard
124/216 $108,000 = $62,000 Deluxe
Number of Product Inspections:
46 + 62 = 108
46/108 $16,400 = $6,985 Standard
62/108 $16,400 = $9,415 Deluxe
Number of Orders Shipped:
334 + 258 = 592
334/592 $206,000 = $116,223 Standard
258/592 $206,000 = $89,777 Deluxe
Diff: 3 Type: ES Page Ref: 169
Objective: 5

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