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Exam 4: Cost Accumulation,tracing,and Allocation

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Question 31

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In an organization,departments that provide support to operating departments are called:

A) service departments.
B) primary departments.
C) operating departments.
D) strategic departments.

E) A) and B)
F) A) and C)

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Question 32

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To avoid the appearance that a joint product is incurring losses,a company might allocate joint costs based on relative sales value of each product at the split-off point.

A) True
B) False

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Question 33

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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.

Overhead costs:

Allocation of costs to various cost objects may:

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

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.

Indicate whether each of the following statements is true or false. Cost accumulation refers to identifying whether a particular cost is fixed or variable. Cost objects may be departments, sales territories, or individual products. Cost accumulation is not useful in a service-type business. An allocation base has a cause-and-effect relationship with a cost object. Timeliness of managerial accounting information is more important than its precision.

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: $\begin{array}{|l|l|c|c|c|}\hline \text { Item } & \text { Direct } &\text { Indirect} & \text { Fixed } & \text { Variable }\\\hline \text { Purchase cost of paper } & \\\hline \text { Assembly labor costs } & \\\hline \text { Supervisory labor costs } & \\\hline \text { Depreciation on paper cutting machines } & \\\hline \text { Depreciation on factory building } & \\\hline \text { Maintenance on machine (performed between } & \\\text { batches of products) } & \\\hline \text { Materials used in small amount, such as glue } & \\\hline \text { Factory rental costs } & \\\hline\end{array}$ 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.

A number of costs that are commonly allocated are listed in the following table followed by two alternative cost allocation bases. $\text { Cost Description } \quad \quad \quad \quad \quad \quad \quad \quad \quad \text { Allocation Base Alternatives }$ $\begin{array}{|l|l|l|}\hline \text { Cafeteria costs } & \text { Direct labor costs } & \text { Number of employees } \\\hline \text { Computer system costs } & \text { Number of departments } & \text { Amount of computer time used } \\\hline \text { Indirect labor costs } & \text { Direct labor hours } & \text { Number of supervisors } \\\hline \text { Indirect materials } & \text { Direct labor hours } & \text { Direct material dollars } \\\hline \text { Factory rent } & \text { Number of departments } & \text { Square footage } \\\hline \text { Fringe benefits costs } & \text { Number of departments } & \text { Number of employees } \\\hline \text { Housekeeping costs } & \text { Square footage } & \text { Number of employees } \\\hline \text { Joint costs } & \text { Number of joint products } & \text { Sales value at split-off } \\\hline \text { Maintenance costs } & \text { Machine hours } & \text { Number of employees } \\\hline \text { Personnel department costs } & \text { Number of employees } & \text { Number of departments } \\\hline\end{array}$ Required: For each cost listed,circle the cost allocation base that you believe would be more appropriate for allocating the cost.

Select the correct statement from the following.

Financial reporting standards require that joint costs:

A factor having a "cause-and-effect" relationship with a cost object is called a(n) :

Which of the following is not an important factor in determining the appropriate cost driver to use in allocating a cost?

Select the term from the list provided that best matches each of the following descriptions.

Joint products are:

Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments,A,B,and C.Assuming the three departments occupy 10,000,20,000,and 30,000 square feet,respectively,the cost allocation rate for Department C is $0.80 per square foot.

Joint costs are irrelevant in a decision to sell a joint product at the split-off point or process it further.

Indicate whether each of the following statements is true or false. Indirect costs cannot be traced to a cost object in a cost-effective manner. For a factory with several departments, each department could be treated as a cost object. Depreciation on a factory building is a direct cost for the departments in the factory. For a factory with several departments, depreciation on equipment used in one department would be a direct cost to that department. An individual cost cannot be both fixed and direct with respect to a particular cost object.

The management accountant at Morrison,Inc.provided the following estimated costs for producing 2,500 units of a specialty product manufactured by the firm: $\begin{array}{lr} \text { Direct Materials } & \$ 10,000 \\\text { Direct Labor (1 hour per unit) } & 5,000 \\\text { Unit-level support costs } & 10,000 \\\text { Batch level support costs } & 5,000 \\\text { Product-level support costs } & 3,000 \\\text { Facility-level support costs } & 7,000\end{array}$ The company believes that direct labor hours are the most appropriate cost driver for assigning overhead costs to its product. Required: 1)Compute the predetermined overhead rate for this company. 2)Compute the specialty product's total estimated cost per unit. 3)Why do firms assign overhead costs using a predetermined overhead rate instead of assigning actual costs?