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Exam 4: Cost Accumulation, Tracing, and Allocation

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Question 41

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Sheddon Industries produces two products. The products' identified costs are as follows: 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 your intermediate calculations.) $\begin{array} { | l | l | l | } \hline & \text { Product A } & \text { Product B } \\\hline \text { Direct materials } & \$ 20,000 & \$ 15,000 \\\hline \text { Direct labor } & 12,000 & 24,000 \\\hline\end{array}$

A) $7.80
B) $22.20
C) $16.80
D) None of the answers are correct.

E) None of the above
F) B) and D)

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Question 42

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Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the wages of sewing machine operators be classified?

A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

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

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Question 43

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Select the false statement from the following.

Managers of a discount store chain are considering whether to add a new auto service department. In reaching this decision, the managers should consider:

In an organization, departments that have tasks leading to the primary objectives of the organization are:

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

The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made.

Indicate whether each of the following statements is true or false.Companies group several individual overhead costs into cost pools to simplify the allocation process.A cost pool should include costs that will all be allocated to a single cost object.When a cost pool is used, costs are allocated individually to the cost object.Using cost pools to group costs generally does not reduce the usefulness of the resulting product costs.

How a particular cost behaves (fixed versus variable) is dependent of whether the cost is classified as direct or indirect.

Preston Company has three divisions. The company should consider a cost to be a direct cost of a division if:

Blankenship Company operates a factory with two departments, X and Y. The utilities to heat and light the manufacturing facility would most likely be allocated to departments X and Y on the basis of:

Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12^th of the cost each month.

A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true?

Use of the direct method to allocate service department costs may cause distortions in the measurement of cost objects.

Anchor Calendar Company manufactures wall and desktop calendars for business use. The company expects production of 20,000 units this year. Various costs and items associated with calendar production are described below: $\begin{array}{|l|l|l|l|l|}\hline \text { Item } & \text { Derect } & \text { Indirect } & \text { Fised } & \text { Varrable } \\\hline \text { Purchase cost of paper } & & & & \\\hline \text { Assembly labor costs } & & & & \\\hline \text { Supervisory labor costs } & & & & \\\hline \begin{array}{l}\text { Depreciation on paper cutting } \\\text { machines }\end{array} & \\\hline \text { Depreciation on factory building } & \\\hline \begin{array}{l}\text { Mantenance on machines } \\\text { (performed between batches of } \\\text { products) }\end{array} & \\\hline \begin{array}{l}\text { Materials used in small amount, } \\\text { such as giue }\end{array} & \\\hline \text { Factory rental costs } & \\\hline\end{array}$ Required: Assume that management is interested in determining the average cost per calendar. For each item in the table, place a check mark or X in every column that applies. When labeling costs as fixed or variable, select your response on the basis of whether the total cost of that item will change when changes occur in volume of calendars produced.

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

The method of allocating service department costs that allocates the costs to both service departments and operating departments is the:

Indicate whether each of the following statements is true or false.Volume measures include number of labor hours, quantity of direct materials used, and number of units sold.A variable overhead cost should be allocated to cost objects using a volume measure as the allocation base.A causal relationship exists between a fixed overhead cost and the volume of production.The allocation base used by a manufacturer to allocate overhead costs may affect the apparent profitability of the various products the company makes.Fixed indirect costs are often allocated using arbitrary allocation bases.

Dallas Company's human resources department provides training and other services to the company's three operating departments and to one service department. The assembly department has 75 employees; the finishing department has 15 employees; and the sales department has 10 employees. The service department to which human resources provides services is the maintenance department, which has 13 employees. The human resources department costs are allocated using the direct method and based on the number of employees, and the total amount of costs for the department is $150,000.Required: Determine the amount of human resources cost that should be allocated to each department.

Selection of a cost driver depends on: