cost accounting test bank chapter 15

Cost Accounting, 15e (Horngren/Datar/Rajan)

Chapter 15 Allocation of Support-Department Costs, Common Costs, and Revenues

Objective 15.1

1) The method that allocates costs in each cost pool using the same rate per unit is known as the ________. A) incremental cost-allocation method B) reciprocal cost-allocation method C) single-rate cost allocation method D) dual-rate cost-allocation method Answer: C

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) The dual-rate cost-allocation method classifies costs in each cost pool into a ________. A) budgeted-cost pool and an actual-cost pool B) variable-cost pool and a fixed-cost pool C) direct-cost pool and an indirect-cost pool D) direct-cost pool and a reciprocal-cost pool Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) The single-rate cost-allocation method may base the denominator choice on ________. A) master-budget capacity utilization B) fixed cost utilization C) variable cost utilization D) direct-cost utilization Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) When using the dual-rate method, the fixed cost allocation is based on ________. A) indirect usage B) budgeted usage

C) incremental cost allocation D) prime cost allocation Answer: B

Diff: 1

Objective: 1

AACSB: Analytical thinking

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5) Which of the following is an advantage of the single-rate method? A) It is less costly to implement.

B) It classifies costs as fixed and variable costs.

C) It gives signals regarding how variable and fixed costs behave differently.

D) It helps the managers on short-run and long-run planning due to fixed cost allocation as per budgeted usage.

Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

6) Which of the following is a disadvantage of single-rate method? A) It is very costly to implement.

B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.

C) It does not signal to department managers how variable costs and fixed costs behave differently. D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging task. Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

7) Which of the following is an advantage of a dual-rate method? A) It is the most widely used method in practice. B) It is less costly to implement.

C) It avoids the expensive analysis for categorizing costs as either fixed or variable.

D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning. Answer: D

Diff: 2

Objective: 1

AACSB: Analytical thinking

8) Which of the following is a disadvantage of a dual-rate method?

A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage.

B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.

C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions.

D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department. Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

2

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9) The advantage of using practical capacity to allocate costs ________. A) is that it allows a downward supply spiral to develop

B) is that it focuses management's attention on managing unused capacity C) is that budgets are much easier to develop

D) is that it results in departments bearing a lower percentage of fixed costs Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

10) The biggest advantage of using practical capacity to allocate costs is that it ________. A) focuses the user's division with the costs of overused capacity B) never causes over or under-allocated overhead

C) burdens the user divisions with the costs of unused capacity D) focuses management's attention on unused capacity Answer: D

Diff: 2

Objective: 1

AACSB: Analytical thinking

Answer the following questions using the information below:

The Charmatz Corporation has a central copying facility. The copying facility has only two users, the

Marketing Department and the Operations Department. The following data apply to the coming budget year:

Budgeted costs of operating the copying facility for 400,000 to 600,000 copies: Fixed costs per year $60,000 Variable costs 3 cents (.03) per copy Budgeted long-run usage in copies per year: Marketing Department 120,000 copies Operations Department 380,000 copies

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.

11) If a single-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Marketing Department? A) $18,000 B) $3,600 C) $14,400 D) $16,800 Answer: A

Explanation: A) [(120,000/ (120,000 + 380,000)) × $60,000] + (120,000 × $0.03) =$18,000

Diff: 2

Objective: 1

AACSB: Application of knowledge

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12) If a single-rate cost-allocation method is used, what amount of copying facility costs will be allocated to the Marketing Department? Assume actual usage is used to allocate copying costs. A) $16,800 B) $18,000 C) $12,000 D) $9,600 Answer: C

Explanation: C) [(120,000) / (120,000 + 380,000)) × $60,000] + (120,000 × $0.03) = $18,000 $18,000/120,000 copies = $0.15 per copy × 80,000 = $12,000

Diff: 3

Objective: 1

AACSB: Application of knowledge

13) If a dual-rate cost-allocation method is used, what amount of copying facility costs will be budgeted for the Operations Department? A) $57,000 B) $56,400 C) $60,490 D) $59,890 Answer: A

Explanation: A) [(380,000) / (120,000 + 380,000)) × $60,000] + (380,000 × $0.03) = $57,000

Diff: 2

Objective: 1

AACSB: Application of knowledge

14) If a dual-rate cost-allocation method is used, what amount of copying facility costs will be allocated to the Operations Department? Assume budgeted usage is used to allocate fixed copying costs and actual usage is used to allocate variable copying costs. A) $60,490 B) $59,890 C) $57,000 D) $56,400 Answer: D

Explanation: D) [(380,000) / (120,000 + 380,000)) × $60,000] + (360,000 × $0.03) = 56,400

Diff: 3

Objective: 1

AACSB: Application of knowledge

4

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Answer the following questions using the information below:

The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted costs of operating the materials laboratory for 100,000 to 200,000 technician hours per year: Fixed costs per year $8,000,000 Variable costs $70 per technician hour Budgeted long-run usage in hours per year: Large Plane Department 80,000 technician hours Small Plane Department 70,000 technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 65,000 technician hours.

15) If a single-rate cost-allocation method is used, what is the allocation rate per hour used? A) $97.33 B) $123.33 C) $146.67 D) $113.33 Answer: B

Explanation: B) Allocation rate per hour = ($8,000,000 + ($150,000 hours × $70))/ 150,000 hours = $123.33/ per hour used

Diff: 2

Objective: 1

AACSB: Application of knowledge

16) If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Large Plane Department? A) $9,866,667 B) $8,226,667 C) $9,781,333 D) $9,881,333 Answer: A

Explanation: A) Budgeted materials laboratory costs for Large Plane Department = [(80,000/ (80,000 +70,000)) × $8,000,000] + (80,000 × $70) = $9,866,667

Diff: 2

Objective: 1

AACSB: Application of knowledge

5

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