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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 111

Multiple Choice

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Which of the followings statements is correct regarding direct and indirect costs?

A) Direct costs cannot easily be traced to a cost object, whereas indirect costs can be easily traced to a cost object.
B) Direct costs can be easily traced to a cost object, whereas indirect costs cannot be easily traced to a cost object.
C) Direct costs are always relevant to a particular cost decision, whereas indirect costs are never relevant to a cost decision.
D) Direct costs are never relevant to a particular cost decision, whereas indirect costs are always relevant to a cost decision.

E) All of the above
F) B) and C)

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Question 112

Multiple Choice

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Which of the following regarding direct costs is a correct statement?

A) Direct costs are always fixed costs.
B) Direct costs are always variable costs.
C) Direct costs are easily traced to cost objects.
D) Direct costs are never selling and administrative expenses.

E) None of the above
F) All of the above

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Question 113

Multiple Choice

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Pets 'n Pals is attempting to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost?

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.)

Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department?

Marsden Company has three departments occupying the following amount of floor space: $\begin{array} { l l } \text { Department } 1 & 15,000 \text { sq.ft. } \\ \text { Department } 2 & 10,000 \text { sq. ft. } \\\text { Department } 3 & 25,000 \text { sq. ft. }\end{array}$ How much store rent should be allocated to Department 3 if total rent is equal to $200,000? (Do not round intermediate calculations.)

The selection of the most appropriate cost driver often requires considerable judgment in the absence of a strong cause-and-effect relationship.

Which of the following costs generally can be traced directly to units of product?

Jiminez Company paid its annual property tax of $11,900 on its manufacturing facility in January. The company expects to make 5,200 units of product during the year. During January, 1,300 units of product were produced. Based on this information: (Do not round intermediate calculations.)

Alleghany Community College operates four departments. The square footage used by each department is shown below: $\begin{array}{lc}\text { Department }&\text {Square Footage }\\\text { Accounting } & 3,000 \\\text { Marketing } & 4,000 \\\text { Technology } & 6,000 \\\text { Sciences } & \underline{3,000}\\\text { Total }& \underline{16,000}\end{array}$ Alleghany's annual building rental cost is $320,000. What amount of rent expense should be allocated to the Sciences Department?

A manager believes that the number of units sold drives the company's selling costs. The number of units sold would be referred to as the cost driver.