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Exam 4: Cost Accumulation, Tracing, and Allocation

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Question 51

True/False

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It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

A) True
B) False

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Question 52

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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.

A) True
B) False

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Question 53

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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?

Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store?

The following information was gathered for Company J, a manufacturing company with three departments, A, B, and C: Manufacturing supplies cost is expected to be $300,000. Possible cost drivers are direct labor hours, direct materials cost, and number of units completed and sold. The three departments have varying amounts for these items. $\begin{array} { | l | r | r | r | } \hline & \text { Department A } & \text { Department B } & \text { Department C } \\\hline \text { Direct labor hours } & 15,000 & 40,000 & 45,000 \\\hline \text { Direct materials cost } & \$ 500,000 & \$ 2,500,000 & \$ 2,000,000 \\\hline \text { \# of units expected to be } & & & \\\text { completed and sold } & 80,000 & 30,000 & 40,000 \\\hline\end{array}$ Based on this information, indicate whether each of the following statements is true or false.If number of units completed and sold is selected as the cost driver, the allocation rate for manufacturing supplies cost would be $2 per unit.If direct labor hours is selected as the cost driver, the manufacturing supplies cost allocated to Department B would be $100,000.The manufacturing supplies cost allocated to Department C would be unaffected by the choice of the cost driver.If the amount of bonuses to department managers is based on income after all expenses, the manager for Department A would prefer that direct materials cost be selected as the cost driver.If the amount of bonuses to department managers is based on income after all expenses, the manager for Department B would prefer that direct labor hours be selected as the cost driver.

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

What should a company consider when pooling indirect costs?

Great Outdoors Company makes two types of camping tents. Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor. During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents. Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours. Based on this information:

Which of the following is not a step in allocating indirect costs to cost objects?

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: The predetermined overhead rate based on units produced is (rounded to the nearest penny) is: $\begin{array}{|l|l|l|l|l|}\hline & 1^{\text {st }} \text { Quarter } & 2^{nd} \text {nuarter } & 3^{rd}\text { Quarter } & 4^{\text {th }} \text { Quarter } \\\hline \text { Units produced } & 11,500 & 9,000 & 8,250 & 11,250 \\\hline\end{array}$

The first step in cost accumulation is to identify cost objects.

Costs that can be traced to a cost object in a cost-effective way are called direct costs.

Using the step method of allocating service department costs, the costs are allocated to:

Which of the following statements is true?

Both direct and indirect costs can be relevant to a particular decision.

For financial reporting, joint costs are assigned to the product with the highest sales value.

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

Services performed by service departments for the benefit of an operating department are called interdepartmental services.

Southeast Manufacturing Company has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of a particular product made in June Cost Object 3: The cost of operating the factory With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects:

In a manufacturing company, service department costs are: