The first stage of a two-stage cost allocation is the computation of predetermined overhead rates for each cost centre.
True / False
False
Activity-based costing is an attempt to overcome the distortions of overhead allocation that uses volume-based bases, such as machine hours or direct-labour hours.
True / False
True
Assigning costs to departments and products on the basis of a variety of activities instead of only one is known as activity-based costing.
True / False
True
A factor that affects the amount of a component of overhead, and is used in activity-based costing (ABC), is a cost driver.
True / False
True
Activity-based costing is a system of assigning costs to departments and products on the basis of a single activity.
True / False
False
The differences between traditional allocation methods and activity-based costing are mainly due to how many production departments are involved in the processing of a product.
True / False
False
Activity-based management is a result of activity-based costing.
True / False
True
The first goal of departmental accounting is to assign costs and expenses to managers who are responsible for managing each department.
True / False
False
The two basic categories of departments are service and production.
True / False
True
The manufacturing departments of a factory and the accounting and advertising service departments are profit centres.
True / False
False
The supplies used in only one department are a direct expense of that department.
True / False
True
Direct expenses and common costs are allocated to service departments on some reasonable basis, such as time, space occupied, or levels of activity.
True / False
False
The bases for allocating indirect costs among departments are influenced by standards set within the industry in which the company operates.
True / False
False
Preparing a departmental income statement requires three basic steps: (1) accumulating direct expenses for each department, (2) allocating indirect expenses across all departments, and (3) allocating service department expenses to selling departments.
True / False
True
Departmental income statements that are prepared without regard as to whether expenses are direct or indirect are often not the best tools for evaluating department performance.
True / False
True
It is possible for a sales department to show a net loss on a departmental income statement but have a positive contribution to overhead.
True / False
True
Departmental contribution to overhead is determined for each profit centre by subtracting from the profit centre's net sales the direct expenses of that profit centre.
True / False
True
It is not possible for a firm to have a higher contribution percentage than one of its selling departments.
True / False
False
When a department manager cannot control or influence a cost assigned to the department, within a given accounting period, that cost is known as an inescapable expense with reference to the manager and the department.
True / False
False
A responsibility accounting budget is a report that shows comparisons of actual costs of the previous accounting period with the budgeted costs of the subsequent accounting period.
True / False
False
A key to successful responsibility budgets and the subsequent responsibility accounting reports is the noninvolvement of lower-level managers in establishing the budget.
True / False
False
A performance report accumulates costs and expenses, by manager, for those costs for which the manager is responsible.
True / False
True
In the food processing industry, the cost of chickens for the purpose of processing chicken legs, breasts, and thighs is a joint cost.
True / False
True
The physical allocation approach to assigning joint costs to products will result in each product showing a profit from its sales.
True / False
False
One outcome of the value-based method of allocating costs to finished products is that each product will have the same percentage of gross profit.
True / False
True
An investment centre incurs investments and generates profits.
True / False
True
-------------------- costing is a two stage allocation system.
ACTIVITY-BASED
A temporary account that accumulates the costs a company incurs to support an identified activity is called an activity ________________.
COST POOL
________________ costs are costs with amounts that the manager has the power to determine or at least strongly influence.
CONTROLLABLE
The maintenance department is an example of a ________________ centre.
COST
________________ driver causes the cost of an activity to go up or down.
A COST
An accounting system that provides information that management can use to evaluate the profitability or cost effectiveness of a department's activities is called a ________________ accounting system.
DEPARTMENTAL
A department's revenues exceed its direct costs and expenses by $45,000. This amount is the department's ________________ to overhead.
DEPARTMENTAL CONTRIBUTION
One-third of the cost of newspaper advertisement in which 1/3 of the space is devoted to merchandise in the Woman's Wear Department is a ________________ expense of that department.
DIRECT
________________ expenses are expenses that would not be incurred if a department were eliminated.
ESCAPABLE
The rent on a department store is an example of an ________________ expense.
INDIRECT
________________ expenses will continue even after a department is eliminated.
INESCAPABLE
A centre in which a manager is responsible for revenues, costs and investments is called an ________________ centre.
INVESTMENT
The cost of acquiring pine logs for manufacturing into various sizes and grades of lumber is an example of a ________________ cost.
JOINT
A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a responsibility ________________ report.
PERFORMANCE
The paint department of a hardware store is an example of a ________________ centre.
PROFIT
A plan that specifies the expected costs and expenses under the control of a manager is called a ________________ accounting budget.
RESPONSIBILITY
An accounting system that provides information that management can use to evaluate the performance of a department's manager is called a responsibility ________________.
ACCOUNTING SYSTEM
A two stage allocation system where the first stage includes identifying the activities involved in the manufacturing process and forming cost pools by combining activities into sets and the second step includes computing the predetermined overhead cost allocation rates for for each cost pool and assigning costs to jobs.
Activity-based costing
A temporary account that accumulates the costs a company incurs to support an identified activity.
Activity cost pool
Costs with amounts that the manager has the power to determine or at least strongly influence.
Controllable costs
A department or unit that incurs costs alone, such as the accounting department.
Cost centre
A driver that causes the cost of an activity to go up or down.
Cost driver
An accounting system that provides information that management can use to evaluate the profitability or cost effectiveness of a department's activities.
Departmental accounting system
The amount by which a department's revenues exceed its direct costs and expenses.
Departmental contribution to overhead
Expenses that are easily traced to a specific department because they are incurred for the sole benefit of that department.
Direct expenses
Expenses incurred for the joint benefit of more than one department.
Indirect expenses
A centre in which a manager is responsible for revenues, costs and investments.
Investment centre
A single cost incurred in producing or purchasing two or more essentially different products.
Joint cost
A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts.
Performance report
A unit of a business that incurs costs and also generates revenues.
Profit centre
A plan that specifies the expected costs and expenses under the control of a manager.
Responsibility accounting budget
An accounting system that provides information that management can use to evaluate the performance of a department's manager.
Responsibility accounting system
Costs that the manager does not have the power to determine or at least strongly influence.
Uncontrollable costs
