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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 31

Multiple Choice

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Which of the following costs generally can be traced directly to units of product?

A) Indirect materials
B) Overhead costs
C) Assembly labor
D) Indirect materials and assembly labor

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

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Question 32

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A cost pool should be made up of costs with a common cost object.

A) True
B) False

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Question 33

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What should a company consider when pooling indirect costs?

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

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

All of the following are examples of indirect costs that can be classified as being variable costs except:

Cost allocation involves:

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

Indicate whether each of the following statements is true or false. 1. When a company can identify more than one cost driver for a particular cost, it should use the cost driver with the strongest cause-and-effect relationship to the cost. 2. Availability and cost of information are likely to influence a company's choice of cost drivers. 3. A company should never use a cost driver unless there is a strong causal relationship between the cost and the cost driver. 4. Different cost drivers almost always give about the same results when a cost is allocated to cost objects. 5. In allocating costs among departments, a company must consider how department managers are likely to respond.

Michael & Co. expects overhead costs of $60,000 per month and direct production costs of $24 per unit. The estimated production activity for the 2013 accounting period is as follows: The predetermined overhead rate based on units produced is (rounded to the nearest penny) is:

It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

How can the use of a predetermined overhead rate prevent timing problems in determining the costs of products?

Nature's Soap manufactures Bar soap and Liquid soap. Of the following costs, which would be an indirect cost to the Liquid Department?

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

What is the object of allocating fixed overhead costs to products?

Indirect costs are often pooled, and not allocated individually because:

The College of Business Administration needs to distribute $12,000 received from an anonymous donor and earmarked for three business student organizations, Beta Alpha Psi (BAP), Delta Sigma Pi (DSP), and Beta Gamma Sigma (BGS). Relevant information is provided below: $\begin{array} { | l | r | r | r | } \hline \text { Possible Cost Driver } & \text { BAP } & \text { DSP } & { \text { BGS } } \\\hline \text { Number of students } & 30 & 40 & 100 \\\hline \text { Budgeted expenses } & \$ 5,500 & \$ 4,000 & \$ 500 \\\hline \begin{array} { l } \text { Number of } \\\text { organizations }\end{array} & 1 & 1 & 1 \\\hline\end{array}$ Assume that each organization wishes to obtain the highest funding possible. Required: 1) Which cost driver will each organization recommend be used to distribute the funds? 2) Which cost driver would you recommend and why?

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

Selection of a cost driver depends on:

Which of the following statements is false?