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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 21

Multiple Choice

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

A) cost driver.
B) allocation base.
C) direct cost.
D) indirect cost.

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

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Question 22

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Both direct and indirect costs can be relevant to a particular decision.

A) True
B) False

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Question 23

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Jessup Company expects to incur overhead costs of $10,000 per month and direct production costs of $125 per unit. The estimated production activity for the upcoming year is 1,000 units. If the company desires to earn a gross profit of $50 per unit, the sales price per unit would be which of the following amounts?

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

Which of the following regarding direct costs is a correct statement?

Pets 'n Pals is attempting to determine the cost of operating a particular store. Which of the following costs would be classified as an indirect cost?

Cost accumulation is used to:

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $50,000 of store rental costs during the current year. The departments identified the following cost drivers: $\begin{array}{lrrr}&\text { Men's }&\text {Women's}&\text { Children's }\\\text { Labor dollars } & \$ 530,000 & \$ 775,000 & \$ 240,000 \\\text { Number of employees } &10& 20 &4\\\text { Square footage } & 3,00 & 8,000 & 1,000 \\\text { Number of sales transactions } &300,000 & 900,000 &90,000\end{array}$ Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round final answer to the nearest dollar.)

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

The goal in allocating a cost to cost objects is to achieve a rational allocation.

Sheddon Industries produces two products. The products' identified costs are as follows: $\begin{array}{l}& \text { Product A } & \text { Product B } \\\text { Direct materials }&\$ 20,000&\$15,000\\\text { Direct labor }&12,000&24,000\end{array}$ The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)

The most useful cost driver for allocating a particular cost is the one with the strongest cause-and-effect relationship.

Cost allocation is the process of dividing a total cost into its fixed and variable components.

A company may use several different cost drivers to allocate its indirect costs.

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?

Which of the following is not a true statement regarding the pooling of indirect costs?

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $120,000 at the beginning of the year was expected to deliver 200,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: $\begin{array}{ccccc}\text { Construction Sites: } & \text { A } & \text { B } & \text { C } & \text { D } \\\text { Tons Delivered: } & 2,000 & 3,500 & 4,000 & 1,500\end{array}$ How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations.)

Both direct and indirect costs can be relevant to a particular decision.

The following are Acme's production costs for the quarter ended September 30^th: $\begin{array}{llr} \text {Direct materials } &\$150,000\\ \text {Direct labor } &\$175,000\\ \text { Factory overhead} &\$225,000\end{array}$ What amount of costs should be traced to specific products in the process?

The primary advantage of establishing cost pools is reducing the number of individual cost allocations that are made.