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Costs are allocated
A. To provide information useful for decision making
B. To reduce frivolous use of resources
C. To encourage evaluation of internally provided services
D. To calculate the "full cost" of products/services for GAAP reporting
E. All of the above are reasons to allocate costs
E. All of the above are reasons to allocate costs
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An important concern in forming a cost pool is to
A. Avoid placing similar costs in the same pool
B. Limit the number of costs that make up the pool
C. Ensure that the costs int he pool are homogenous
D. None of the above
C. Ensure that the costs in the pool are homogenous, or similar (this provides more accurate information) (this multiple choice question has been scrambled)
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In the cost allocation process, an allocation base
A. Must be some characteristic that is common to all of the cost objectives
B. Both a and b
C. Ideally should result in the cost being allocated based on a cause and effect relationship
D. None of the above
B. Both a and b (this multiple choice question has been scrambled)
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The direct method of allocating costs
A. Both b and c
B. Allocates service department costs to producing departments only
C. Allocates service department costs to other service departments
D. Allocates only direct costs
B. Allocates service department costs to producing departments only (this multiple choice question has been scrambled)
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When fixed costs are stated on a per unit basis
A. Both a and b
B. Fixed costs are said to be "unitized"
C. May appear to be variable to managers receiving allocations
D. Decision making is greatly improved
A. Both a and b (this multiple choice question has been scrambled)
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One way to avoid the problems associated with unitized fixed costs is to
A. Not allocate fixed costs
B. Use a lump sum method of allocating fixed costs
C. Combine fixed and variable costs in a single cost pool
D. None of the above
B. Use a lump sum method of allocating fixed costs (this multiple choice question has been scrambled)
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Controllable costs for the manager of Producation Department A include:
A. Costs of material and labor used in Department A
B. All costs related to Department A's final product
C. Costs of the finance department
D. All of the above
A. Costs of material and labor used in Department A (this multiple choice question has been scrambled)
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In allocating costs to products, more accurate costing is generally obtained by
A. Always using allocation bases that are based on production volume
B. Allocating costs using labor hours as the allocation base
C. Having more than one cost pool
D. None of the above
C. Having more than one cost pool (this multiple choice question has been scrambled)
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Costs drivers in activity based costing
A. Are workers who influence cost control
B. Are always related to production volume
C. Often assign more costs to low volume products than traditional allocation methods
D. None of the above
C. Often assign more costs to low volume products than traditional allocation methods (this multiple choice question has been scrambled)
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Most companies that use an activity based costing system use
A. More than five cost pools
B. Two to five cost pools
C. No cost pools
D. One or two cost pools
A. more then five cost pools (this multiple choice question has been scrambled)
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Cost allocation refers to
the processing of assigning indirect costs
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What is a cost objective
A product, service, or department that receives an allocation of cost
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Why is it generally a good idea to allocate budgeted, rather than actual, service department costs?
If budgeted costs are allocated, then service departments cannot pass on inefficiencies and waste. Allocating actual costs gives the service department little incentive to be efficient
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What is a responsiblity accounting system?
Revenues and costs are traced to departments/divisions and individuals with related responsibility for generating revenues and controlling costs. This facilitates performance evaluation of managers and the operations under their control
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Why might noncontrollable costs be allocated to a department?
Managers are allocated costs beyond their control in order to make them aware that the costs exists and must be covered by revenues of the firm
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How would traditional methods of allocating overhead to products underallocate costs to low production volume products?
They use a small number of cost pools and allocation bases related to production volume but some costly activities are not related to production volume.
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How does activity based costing differ from the traditional costing approach?
Traditional costing uses allocation bases that are measures of production volume and their are few cost pools
ABC focuses on major activities that cause overhead costs to be incurred. Many activities are not related to production volume.
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When would activity based costing give more accurate costs than traditional costing systems?
- When:
- The production process is complex and varied (high/low volume products)
- Products consume resources differently
- There are activities that are not related to production volume
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In the cost allocation process, the cost objective is the
A. A grouping of individual costs whose total is allocated using one allocation base
B. The allocation based used to allocate the costs
C. The product, service or department that is to receive the allocation
D. None of the above
C. The product, service or department that is to receive the allocation (this multiple choice question has been scrambled)
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