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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 91

True/False

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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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Question 92

Multiple Choice

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

A) Liquid manager's salary
B) Manufacturing plant insurance
C) Depreciation of the liquefying equipment
D) Liquid Fragrance

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

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Question 93

Multiple Choice

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Overhead costs:

Selection of a cost driver depends on:

Jessup Company expects to incur overhead costs of $12,000 per month and direct production costs of $138 per unit. The estimated production activity for the upcoming year is 1,200 units. If the company desires to earn a gross profit of $63 per unit, the sales price per unit would be which of the following amounts?

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: $\begin{array} { | l | c | c | c | c | } \hline& 1 ^ { \text {st } } \text { Quarter } & 2 ^ { \text {nd } } \text { Quarter } & \mathbf { 3 } ^ { \text {rd } } \text { Quarter } & 4 ^ { \text {th } } \text { Quarter} \\\hline \text { Units produced } & 11,500 & 5,000 & 8,250 & 11,250 \\\hline\end{array}$ The predetermined overhead rate based on units produced is: (Round the answer to 2 decimal places.)

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $33,000 of store rental costs during the current year. The departments identified the following cost drivers: $\begin{array}{lrrr}&\text { Men's }&\text { Women's}&\text { Children's }\\\text { Labor dollars } & \text { \$ 533,000 } & \$ 778,000 & \$ 243,000 \\\text { Number of employees } & 13 & 23 & 7 \\\text { Square footage } & 3,300 & 8,300 & 1,300\\\text { Number of sales transactions } & 303.000 & 903.000 & 93.000\end{array}$ Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round your answer to the nearest dollar.)

The Western and Pacific Railroad has two divisions, the Western Division and the Pacific Division. The company recently invested $8,600,000 to maintain its railroad track. Pertinent data for the two divisions are as follows:Total Miles Traveled: $\begin{array}{lr}\text { Western Division } & 860,000 \mathrm{miles} \\\text { Pacific Division } & 1,260,000 \mathrm{miles}\end{array}$ The amount of track improvement cost that should be allocated to the Western Division is: (Round intermediate calculation to 2 decimal places.)

Which of the following best describes the term used to assign indirect costs to a cost object?

For a manufacturer, measures of volume may include:

The first step in cost accumulation is to identify cost objects.

Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of the year, Danforth estimated that total annual fixed overhead costs would amount to $60,000. Further, Danforth estimated that the annual volume of production would be 1,000 units of product. Based on these estimates, Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year. As predicted, the actual volume of production amounted to 1,000 units of product. However, actual fixed overhead costs amounted to $56,000. Based on this information alone:

Select the incorrect statement from the following.

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

At the beginning of the year, Rangle Company expected to incur $54,000 of overhead costs in producing 6,000 units of product. The direct material cost is $20 per unit of product. Direct labor cost is $30 per unit. During January, 600 units were produced. The total cost of the units made in January was:

Craig Manufacturing Company operates its three production departments within a single facility. Each department produces its own products and maintains its own production equipment. Although they share a common facility, each department is overseen by a separate supervisor. Which one of the following costs is a direct cost of each department?

An allocation base has a cause-and-effect relationship with a cost object.

The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing.

Some costs that possibly could be traced directly to cost objects are nonetheless classified as indirect costs because:

Southeast Manufacturing Company has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of a particular product made in June Cost Object 3: The cost of operating the factory With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects: