Cost Allocation Techniques MCQs

Wilcox Industrial has two support departments, the Information Systems Department and the Personnel Department, and two manufacturing departments, th...

Assembly Department are allocated to the Information Systems Department and the Personnel Department.
Information Systems Department are allocated to the Machining Department and the costs of the Machining Department are allocated to the Assembly Department.
Personnel Department are allocated solely to the Information Systems Department.
Information Systems Department are allocated to the Personnel Department, Machining Department, and Assembly Department.

A corporation allocates indirect corporate overhead costs to its operating divisions. The company uses a cause-and-effect criterion in the selection ...

Number of employees in each division.
Square footage of space occupied by each division.
Total service years of employees in each division.
Total book value of identifiable division assets.

Cotton Company has two service departments and three operating departments. In allocating service department costs to the operating departments, whic...

Direct and reciprocal methods only.
Step-down and reciprocal methods only.
Direct and step-down methods only.
Direct method only.

Boston Furniture Company manufactures several steel products. It has three production departments: Fabricating, Assembly, and Finishing. The service ...

Request an excessive amount of service.
Replace outdated and inefficient systems.
Refrain from using unnecessary services.
Be encouraged to control costs

The management of ROX Company wishes to encourage all other departments to use the legal department, as circumstances warrant. To accomplish this, le...

Allocated to users on the basis of the actual cost of hours used.
Allocated to users on the basis of the budgeted cost of actual hours used.
Allocated to users on the basis of standard cost for the type of service provided.
Absorbed as a corporate expense.

When allocating costs from one department to another, a dual-rate cost-allocation method may be used. The dual-rate cost-allocation method is most us...

Two or more cost pools are to be allocated.
Two or more departments’ costs are to be allocated.
Two or more products are produced.
Costs are separated into variable-cost and fixed-cost subpools.

Allocation of service department costs to the production departments is necessary to

Control costs
Coordinate production activity.
Determine overhead rates.
Maximize efficiency

When allocating service and administrative costs, the least useful criterion as a basis for allocation is

Fairness.
Benefit
Cause.
Ability to bear.

Wilcox Industrial has two support departments, the Information Systems Department and the Personnel Department, and two manufacturing departments, th...

Personnel Department would be allocated to the Information Systems Department.
Information Systems Department would be allocated to the Personnel Department.
Personnel Department would be allocated to the Assembly Department.
Personnel Department would be allocated to the Assembly Department and the Machining Department.

Render, Inc., has four support departments (maintenance, power, human resources, and legal) and three operating departments. The support departments ...

Direct allocation method.
Dual-rate allocation method
Step-down allocation method.
Reciprocal allocation method.

Wilcox Industrial has two support departments, the Information Systems Department and the Personnel Department, and two manufacturing departments, th...

Personnel Department would be allocated to the Information Systems Department.
Machining Department would be allocated to the Information Systems Department.
Information Systems Department would be allocated to the Assembly Department.
Assembly Department would be allocated to the Machining Department.

A large company is in the process of allocating service department costs to revenuegenerating departments. Under which one of the following allocatio...

Step-down method.
Direct method.
Reciprocal method.
Activity-based method

Which of the following statements is true for a firm that uses variable costing?

The cost of a unit of product changes because of changes in number of units manufactured.
Profits fluctuate with sales.
An idle facility variation is calculated.
Product costs include variable administrative costs.

When a firm prepares financial reports by using absorption costing,

Profits will always increase with increases in sales.
Profits will always decrease with decreases in sales.
Profits may decrease with increased sales even if there is no change in selling prices and costs.
Decreased output and constant sales result in increased profits

Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both variable and fixed, as inventoriable costs?

Direct costing.
Variable costing.
Absorption costing.
Conversion costing.

The contribution margin is the excess of revenues over

Cost of goods sold.
Manufacturing cost.
Direct cost.
All variable costs.

Which one of the following statements is true regarding absorption costing and variable costing?

Overhead costs are treated in the same manner under both costing methods.
If finished goods inventory increases, absorption costing results in higher income.
Variable manufacturing costs are lower under variable costing.
Gross margins are the same under both costing methods.

Jansen, Inc., pays bonuses to its managers based on operating income. The company uses absorption costing, and overhead is applied on the basis of di...

Produce those products requiring the most direct labor.
Defer expenses such as maintenance to a future period.
Increase production schedules independent of customer demands.
Decrease production of those items requiring the most direct labor.

The costing method that is properly classified for both external and internal reporting purposes is External Reporting ... Internal Reporting

Activity-based costing No Yes
Job-order costing No Yes
Variable costing No Yes
Process costing No No

Absorption costing and variable costing are two different methods of assigning costs to units produced. Of the four cost items listed below, identify ...

Manufacturing supplies Yes Yes
Insurance on factory Yes No
Direct labor cost Yes Yes
Packaging and shipping costs Yes Yes

Which one of the following is an advantage of using variable costing?

Variable costing complies with the U.S. Internal Revenue Code.
Variable costing complies with generally accepted accounting principles.
Variable costing makes cost-volume relationships more easily apparent.
Variable costing is more relevant to long run pricing strategies.

Huntington Corporation pays bonuses to its managers based on operating income, as calculated under variable costing. It is now 2 months before year en...

Step up production so that more manufacturing costs are deferred into inventory.
Cut $2.3 million of advertising and marketing costs.
Postpone $1.8 million of discretionary equipment maintenance until next year.
Implement, with the aid of the controller, an activity-based costing and activity-based management system.

When comparing absorption costing with variable costing, which of the following statements is not true?

Absorption costing enables managers to increase operating profits in the short run by increasing inventories.
When sales volume is more than production volume, variable costing will result in higher operating profit.
A manager who is evaluated based on variable costing operating profit would be tempted to increase production at the end of a period in order to get a more favorable review.
Under absorption costing, operating profit is a function of both sales volume and production volume.

Which one of the following is the best reason for using variable costing?

Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units.
All costs are variable in the long term.
Variable costing is acceptable for income tax reporting purposes.
Variable costing usually results in higher operating income than if a company uses absorption costing.

If a manufacturing company uses variable costing to cost inventories, which of the following costs are considered inventoriable costs?

Only raw material, direct labor, and variable manufacturing overhead costs.
Only raw material, direct labor, and variable and fixed manufacturing overhead costs.
Only raw material, direct labor, variable manufacturing overhead, and variable selling and administrative costs.
Only raw material and direct labor costs.

Manchester Airlines is in the process of preparing a contribution margin income statement that will allow a detailed look at its variable costs and p...

Flight crew salary, fuel, and engine maintenance.
Fuel, food service, and airport landing fees.
Airplane depreciation, baggage handling, and airline marketing.
Communication system operation, food service, and ramp personnel.

Xylon Company uses direct (variable) costing for internal reporting and absorption costing for the external financial statements. A review of the fir...

A difference in the treatment of fixed selling and administrative costs.
A higher inventoriable unit cost reported to management than to the shareholders.
A contribution margin rather than gross margin in the reports released to shareholders.
Internal income figures that vary closely with sales and external income figures that are influenced by both units sold and productive output.

When comparing absorption costing with variable costing, the difference in operating income can be explained by the difference between the

Units sold and the units produced, multiplied by the unit sales price.
Ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit.
Ending inventory in units and the beginning inventory in units, multiplied by the unit sales price.
Units sold and the units produced, multiplied by the budgeted variable manufacturing cost per unit.

Dawn Company has significant fixed overhead costs in the manufacturing of its sole product, auto mufflers. For internal reporting purposes, in which ...

If more units were produced than were sold during a given year.
If more units were sold than were produced during a given year.
In all cases when ending finished goods inventory exists.
None of these situations.

The primary difference between absorption and variable costing is that variable costing treats

Only direct materials and direct labor as product cost.
Direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
Only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost.
Only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs.

Isaac Toy Company’s management would like to determine profitability of its Alpha Doll product line. To eliminate the possibility of profit distorti...

Variable (direct) costing income statements.
Absorption costing income statements.
Multi-step income statements.
Cash flow statements.

Osawa, Inc., planned and actually manufactured 200,000 units of its single product during its first year of operations. Variable manufacturing costs ...

$200,000
$440,000
$800,000
$600,000

The following is taken from Fortech Companyâ€™s records for the fiscal year just ended: Direct materials used $300,000 ...

$400,000
$450,000
$490,000
$530,000

The following is taken from Fortech Companyâ€™s records for the fiscal year just ended: Direct materials used $300,000 ...

$400,000
$450,000
$530,000
$590,000

"Estimated unit costs for Cole Lab using full absorption costing and operating at a production level of 12,000 units per month:" ...

$35
$41
$44
$48

"Estimated unit costs for Cole Lab using full absorption costing and operating at a production level of 12,000 units per month:" ...

$73
$32
$67
$52

Farber Company employs a normal (nonstandard) absorption cost system. The following information is from the financial records of the company for the ...

$750,000
$812,500
$937,500
$1,150,000

Farber Company employs a normal (nonstandard) absorption cost system. The following information is from the financial records of the company for the ...

$300,000.
$225,000
$100,000.
$75,000.

Farber Company employs a normal (nonstandard) absorption cost system. The following information is from the financial records of the company for the ...

$750,000
$600,000
$909,375
$937,500

The marketing manager of Ames Company has learned the following about a new product that is being introduced by Ames: Sales of this product are plann...

$8,000
$8,500
$10,000
$10,500

Bethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred varia...

$5,000,000
$6,000,000
$8,000,000
$11,000,000

Using absorption costing, Langdon Company’s income for October was $250,000. Langdon began the month with 10,000 units in finished goods inventory ...

$265,000
$250,000
$235,000
$234,308

"Last year a company had sales of 75,000 units and production of 100,000 units. Other information for the year is shown below." ...

$159,375
$184,375
$209,375
$279,175

"Last year a company had sales of 75,000 units and production of 100,000 units. Other information for the year is shown below." ...

$553,125
$478,125
$403,125
$328,125

Joint costs are useful for

Setting the selling price of a product
Determining whether to continue producing an item.
Evaluating management by means of a responsibility reporting system.
Determining inventory cost for accounting purposes.

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maxi...

Separable costs after the split-off point.
Joint costs to the split-off point.
Sales salaries for the period when the units were produced.
Purchase costs of the materials required for the joint products.

The principal disadvantage of using the physical quantity method of allocating joint costs is that

Costs assigned to inventories may have no relationship to value.
Physical quantities may be difficult to measure.
Additional processing costs affect the allocation base
Joint costs, by definition, should not be separated on a unit basis.

A company produces three main joint products and one by-product. The by-product’s relative sales value is quite low compared with that of the main ...

An addition to the revenues of the other products allocated on the basis of their respective net realizable values.
Revenue in the period it is sold.
A reduction in the common cost to be allocated to the three main products.
A separate net realizable value upon which to allocate some of the common costs.

The primary purpose for allocating common costs to joint products is to determine

The selling price of a by-product.
Whether one of the joint products should be discontinued
The variance between budgeted and actual common costs.
The inventory cost of joint products for financial reporting.

The distinction between joint products and by-products is largely dependent on

Historical costs.
Prime costs.
Market value.
Salvage value.

In a production process where joint products are produced, the primary factor that will distinguish a joint product from a by-product is the

Relative total sales value of the products.
Relative total volume of the products.
Relative ease of selling the products.
Accounting method used to allocate joint costs.

All of the following are methods of allocating joint costs to joint products except

Physical quantities method.
Net realizable value method.
Separable production cost method.
Gross market value method.

Fitzpatrick Corporation uses a joint manufacturing process in the production of two products, Gummo and Xylo. Each batch in the joint manufacturing p...

$2,000
$5,760
$14,000
$26,000

A company manufactures several products that originate in a joint process and are separated at a split-off point. Which one of the following methods ...

Net realizable value method.
Sales value at split-off method.
Physical quantity method.
Constant gross margin percentage method.

Indirect and common costs often make up a significant portion of the cost of a product. All of the following are reasons for indirect cost allocation...

Reduce total costs identified with products.
Measure income and assets for external reporting purposes.
Justify costs for reimbursement purposes.
Provide information for economic decision making.

If all of the joint products are sold at the split-off point and an overall profit is made on all of the products, which one of the following joint c...

Sales value at split-off method.
Physical measures method using sales volume.
Physical measures method using production volume.
Physical measures method using weight.

Stone Company manufactures two products that incur joint costs of $60,000. It costs an additional $10,000 to produce 5,000 units of Product 1 and an ...

$3.60
$5.43
$5.60
$6.00

Units of production is an appropriate overhead allocation base when

Several well-differentiated products are manufactured.
Direct labor costs are low.
Direct material costs are large relative to direct labor costs incurred.
Only one product is manufactured

When the amount of overapplied factory overhead is significant, the entry to close overapplied factory overhead will most likely require

A debit to cost of goods sold.
Debits to cost of goods sold, finished goods inventory, and work-in-process inventory.
A credit to cost of goods sold.
Credits to cost of goods sold, finished goods inventory, and work-inprocess inventory

The appropriate method for the disposition of underapplied or overapplied overhead of a manufacturer

Is to cost of goods sold only.
Is to finished goods inventory only.
Is apportioned to cost of goods sold and finished goods inventory.
Depends on the significance of the amount.

Which method of measuring the costs to be assigned to products or services uses budgeted rates for direct costs but applies those rates to the actual...

Actual costing.
Normal costing.
Extended normal costing.
Standard costing.

When Nash Glassworks Company allocates fixed costs, management will select a capacity level to use as the denominator volume. All of the following ar...

Normal capacity
Expected annual activity
Theoretical capacity.
Master-budget capacity.

In determining next yearâ€™s overhead application rates, a company desires to focus on manufacturing capacity rather than output demand for its ...

Practical capacity.
Maximum capacity.
Normal capacity
Master-budget (expected annual) capacity.

Generally, individual departmental rates rather than a plantwide rate for applying manufacturing overhead are used if

A company wants to adopt a standard cost system.
A company’s manufacturing operations are all highly automated.
Manufacturing overhead is the largest cost component of its product cost.
The manufactured products differ in the resources consumed from the individual departments in the plant.

The numerator of the overhead application rate equals

Estimated overhead costs.
Actual overhead costs.
The estimated activity level.
The actual activity level.

In a labor intensive industry in which more overhead (service, support, more expensive equipment, etc.) is incurred by the more highly skilled and pa...

Direct labor hours.
Direct materials cost.
Machine hours.
Direct labor cost.

The denominator of the overhead application rate can be based on one of several production capacities. Which would minimize expected over- or underap...

Theoretical capacity.
Expected volume
Normal volume.
Practical capacity

Which concept of capacity applies the least amount of overhead to units of production?

Theoretical capacity
Normal volume.
Practical capacity.
Minimum volume

Annual overhead application rates are used to

Budget overhead.
Smooth seasonal variability of overhead costs.
Simulate seasonal variability of activity levels
Treat overhead as period costs.

Departmental overhead rates are usually preferred to plant-wide overhead rates when

The activities of each of the various departments in the plant are not homogeneous.
The costs of many service departments are being allocated to each of the various departments.
All products passing through the various departments require the same manufacturing effort in each department
Most of the overhead costs are fixed.

Normal costing systems are said to offer a user several distinct benefits when compared with actual costing systems. Which one of the following is not...

More timely costing of jobs and products.
A smoothing of product costs throughout the period.
Improved accuracy of job and product costing.
A more economical way of attaching overhead to a job or product.

Henry Manufacturing, which uses direct labor hours to apply overhead to its product line, undertook an extensive renovation and modernization program ...

I, II, III, and IV.
I and IV only.
II and IV only.
I and III only.

The most important criterion in accurate cost allocations is

Using a simple allocation method.
Allocating fixed and variable costs by using the same allocation base
Using homogeneous cost pools.
Using multiple drivers for each cost pool.

A capital-intensive manufacturer of large construction equipment has a manufacturing process that relies heavily on specialized machinery. This machin...

Sales dollars.
Direct labor costs.
Machine hours.
Direct labor hours.

A company has budgeted overhead costs at its normal capacity based on machine hours. Variable factory overhead is $180,000, and fixed factory overhead...

Fixed factory overhead of $560,000 and a lower hourly rate for variable overhead.
Fixed factory overhead of $560,000 and the same hourly rate for variable overhead
Fixed factory overhead of $560,000 and a higher hourly rate for variable overhead.
Variable overhead of less than $180,000 and a lower hourly rate for variable overhead.

A manufacturing process normally produces defective units equal to 1% of production. Defective units are subsequently reworked and sold. The cost of r...

Factory overhead control.
Work-in-process control.
Finished goods control.
Cost of goods sold.

During the current accounting period, a manufacturing company purchased $70,000 of raw materials, of which $50,000 of direct materials and $5,000 of ...

$25,000
$30,000
$45,000
$50,000

Wagner Corporation applies factory overhead based upon machine hours. At the beginning of the year, Wagner budgeted factory overhead at $250,000 and ...

$240,000
$242,500
$250,000
$252,000

"From the following budgeted data, calculate the budgeted indirect cost rate that would be used in a normal costing system." ...

$20
$28
$40
$48

"Baldwin Printing Company uses a job order costing system and applies overhead based on machine hours. A total of 150,000 machine h...

$577,500
$600,000
$645,000
$660,000

Patterson Corporation expects to incur $70,000 of factory overhead and $60,000 of general and administrative costs next year. Direct labor costs at $...

$28
$120
$140
$260

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity ba...

Units of product sold.
Salary of service department employees.
Units of electric power consumed.
Direct materials usage

The two most appropriate factors for budgeting manufacturing overhead expenses would be

Machine hours and production volume.
Management judgment and contribution margin.
Management judgment and production volume
Management judgment and sales dollars.

When allocating service department costs to production departments, the method that does not consider different cost behavior patterns is the

Step method.
Reciprocal method.
Direct method.
Single-rate method.

There are several methods for allocating service department costs to the production departments. The method that recognizes service provided by one s...

Direct method.
Variable method.
Reciprocal method.
Step-down method.

A large manufacturing company has two service departments and two production departments. Each of the service departments renders services to each ot...

The direct allocation method.
The step-down allocation method
The linear allocation method.
The reciprocal allocation method.

Under variable costing, fixed manufacturing overhead is:

carried in a liability account.
carried in an asset account.
ignored.
immediately expensed as a period cost.

Which of the following costs at a manufacturing company would be treated as a product cost under both absorption costing and variable costing? Vari...

Yes; Yes
Yes; No
No; Yes
No; No

Which of the following are included in product costs under variable costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead....

I, II, and III
I and III
I and II
I

Under variable costing:

net operating income will tend to move up and down in response to changes in levels of production.
inventory costs will be lower than under absorption costing.
net operating income will tend to vary inversely with production changes.
net operating income will always be higher than under absorption costing.

In an income statement prepared using the variable costing method, fixed selling and administrative expenses would:

be used in the computation of the contribution margin.
be used in the computation of net operating income but not in the computation of the contribution margin.
be treated the same as variable manufacturing expenses.
not be used.

In an income statement prepared using the variable costing method, fixed manufacturing overhead would:

not be used.
be used in the computation of the contribution margin.
be used in the computation of net operating income but not in the computation of the contribution margin.
be treated the same as variable manufacturing overhead.

In an income statement prepared as an internal report using variable costing, variable selling and administrative expenses would:

When sales exceed production, the net operating income reported under variable costing generally will be:

less than net operating income reported under absorption costing.
greater than net operating income reported under absorption costing.
equal to net operating income reported under absorption costing.
higher or lower because no generalization can be made.

A single-product company prepares income statements using both absorption and variable costing methods. Manufacturing overhead cost applied per unit p...

Less than units sold in year 2.
Less than the activity level used for allocating overhead to the product.
In excess of the activity level used for allocating overhead to the product.
In excess of units sold in year 2.

The type of costing that provides the best information for breakeven analysis is:

job-order costing.
variable costing.
process costing.
absorption costing.

Advocates of variable costing argue that:

fixed production costs should be added to inventory because such costs have future service potential and therefore are inventoriable as an asset.
fixed production costs should be capitalized as an asset and amortized over future periods when benefits from such costs are expected to be received.
fixed production costs should be charged to the period in which they are incurred unless sales do not equal production in which case any difference should be capitalized as an asset and amortized over future periods.
fixed production costs should be charged to the period in which they are incurred.

An example of a production overhead would be:

Materials
Labour costs
Supervisory costs
Rent

Which of the following would not be classed as a service department?

The canteen
The finance department
The assembly department
The maintenance department

Which of the following entries would record correctly the monthly salaries earned by the top management of a manufacturing company?

Manufacturing Overhead ........................... XXX
Salaries and Wages Payable ............. XXX
Salaries Expense ........................................ XXX
Salaries and Wages Payable ............. XXX
Work in Process ......................................... XXX
Salaries and Wages Payable ............. XXX
Salaries and Wages Payable ....................... XXX
Salaries Expense ............................... XXX

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Cost Allocation Techniques MCQs