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A manager believes that the number of units sold drives the company's selling costs. The number of units sold would be referred to as the cost driver.

A) True
B) False

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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?


A) Labor hours
B) Direct material costs
C) Number of warehouses completed
D) Square footage of the warehouses

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

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Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. During the upcoming, the company expects to make 2,000 comforters. With respect to the comforters how would the fabric used to make the comforters be classified?


A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

E) None of the above
F) A) and D)

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Select the incorrect statement from the following.


A) The difference between a direct cost and an indirect cost is that a direct cost relates to a given cost object while an indirect cost does not.
B) Actual costs are useful for evaluating managerial performance.
C) Actual costs are not relevant in many decisions because actual costs cannot be determined until after the decision has been made.
D) When accumulating the cost of a specific cost object, the indirect costs are allocated to the cost object.

E) All of the above
F) A) and B)

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The following are Acme's production costs for the quarter ended September 30th: The following are Acme's production costs for the quarter ended September 30<sup>th: </sup> What amount of costs should be traced to specific products in the process? A) $150,000 B) $175,000 C) $225,000 D) $325,000 What amount of costs should be traced to specific products in the process?


A) $150,000
B) $175,000
C) $225,000
D) $325,000

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

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

A) True
B) False

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State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: State University's College of Business is divided into three departments, accounting, marketing, and management. Relevant information for each department is provided below: The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor? A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty. B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty. C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester. D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty. The Dean of the College of Business is trying to assign funds from the operating budget to the three departments. Assuming that the chair of each department is trying to attain the highest funding possible for his/her department, which of the following most accurately describes the allocation base that each chair will favor?


A) The chair of the Management department will want to use the number of classes while the chair of the Marketing department will prefer the number of faculty.
B) The chair of the Accounting department and the chair of the Management department will want to use the number of faculty.
C) The chair of the Marketing department will want to use number of students, while the chair of the Accounting department will want to use number of classes per semester.
D) The chair of the Accounting department will want to use number of students while the chair of the Management department will want to use number of faculty.

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

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Selection of a cost driver depends on:


A) The availability of information for both the cost and the potential cost driver.
B) A cause-and-effect relationship between the cost driver and the cost.
C) Judgment of management.
D) All of the answers are correct.

E) B) and C)
F) All of the above

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Managers of a discount store chain are considering whether to add a new auto service department. In reaching this decision, the managers should consider:


A) Direct costs only.
B) Both direct and indirect costs.
C) Neither direct nor indirect costs.
D) Indirect costs but not direct costs.

E) C) and D)
F) None of the above

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Indicate whether each of the following statements is true or false. Indicate whether each of the following statements is true or false.

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Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs.

A) True
B) False

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Indicate whether each of the following statements is true or false. Indicate whether each of the following statements is true or false.

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Sometimes, volume-based cost drivers are used to allocate fixed indirect costs.

A) True
B) False

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

A) True
B) False

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Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified?


A) Direct and variable
B) Direct and fixed
C) Indirect and variable
D) Indirect and fixed

E) None of the above
F) B) and C)

Correct Answer

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Allocation of costs to various cost objects may affect:


A) managers' performance evaluation.
B) the overall profitability of a company.
C) the apparent profitability of the various products a company makes.
D) managers' performance evaluation and the apparent profitability of the various products a company makes.

E) A) and D)
F) All of the above

Correct Answer

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Which of the following statements is true regarding the salary of the manager of a fast food hamburger restaurant?


A) The salary is a fixed cost that is directly traceable to the cost of making hamburgers.
B) The salary is a variable cost that is directly traceable to the cost of operating a specific restaurant.
C) The salary is a variable cost that cannot be traced to the cost of operating a specific restaurant.
D) None of the answers are correct.

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

Correct Answer

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Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: The predetermined overhead rate based on units produced is: (rounded to the nearest penny.) A) $1.50 per unit. B) $2.67 per unit. C) $18.00 per unit. D) $42.00 per unit. The predetermined overhead rate based on units produced is: (rounded to the nearest penny.)


A) $1.50 per unit.
B) $2.67 per unit.
C) $18.00 per unit.
D) $42.00 per unit.

E) All of the above
F) B) and C)

Correct Answer

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Once indirect costs are pooled, they must remain pooled for all allocations.

A) True
B) False

Correct Answer

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Indirect costs should not be pooled unless they share a common cost driver.

A) True
B) False

Correct Answer

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