Question 1

Sales Smart allocates advertising expenses to its two departments, F and M, using sales as the cost driver. For the current year the sales for department F are estimated to be $900,000 and for department M $600,000 and total advertising expenses are budgeted at $55,000. The indirect cost rate is:

Accepted Answer

A)   F$33,000: M $22,000
B)   $.036 per sales dollar
C)   F$.0611: M $.0917 per sales dollar
D)   F$36,667: M $18,333

Question 2

The cost driver that is a volume based cost driver is:

Accepted Answer

A)   labour hours
B)   number of set-ups
C)   number of employees
D)   all are volume based cost drivers

Question 3

As the number of cost pool increases the accuracy of the cost information decreases.

Accepted Answer

A) True 
 B)False

Question 4

Support department cost allocations should never be made when the information is to be used to evaluate the performance of an operating department manager.

Accepted Answer

A) True 
 B)False

Question 5

Which statement concerning the step-down method of allocating support department costs is not correct?

Accepted Answer

A)   The method allocates costs one department at a time
B)   The cost object in the allocation exercise is the support departments and the operating departments
C)   The method recognises that support departments provide support for other support departments
D)   The allocation process begins with the support department that provides the least service to the other support departments

Question 6

Which of these statements concerning the determination of the full cost of a cost object is not true?

Accepted Answer

A)   direct costs are traced via source documentation
B)   full cost includes only manufacturing costs
C)   indirect costs are allocated via the use of a cost driver
D)   none of the statements is untrue B

Question 7

When discussing costing the indirect cost rate is:

Accepted Answer

A)   the rate used to assign indirect costs to the cost object
B)   the total costs incurred for a cost object
C)   the input or activity that causes changes in total costs for a cost object
D)   the method used to allocate the costs of each support department to the operating departments

Question 8

The allocation method for support department costs that allocates fixed and variable costs separately is:

Accepted Answer

A)   the direct method
B)   the step-down method
C)   the reciprocal method
D)   the dual-rate method

Question 9

The allocation method for support department costs that can manipulate the costs allocated by changing the order of the support department cost allocation is:

Accepted Answer

A)   the direct method
B)   the step-down method
C)   the reciprocal method
D)   the dual-rate method B

Question 10

The allocation of indirect costs to cost objects is likely to be inaccurate if the allocation base used is not a cost driver.

Accepted Answer

A) True 
 B)False

Question 11

The reason for allocating indirect costs is:

Accepted Answer

A)   for pricing decisions
B)   to comply with external reporting requirements
C)   to remind departmental managers of the full impact of their decisions
D)   all of the above

Question 12

The allocation order of support department costs does not matter if the reciprocal method of allocation is used

Accepted Answer

A) True 
 B)False  True

Question 13

The distinction between direct costs and indirect costs depends on their traceability to

Accepted Answer

A)   a cost object
B)   a manufacturing operation
C)   an activity
D)   a product

Question 14

Sales Smart allocates indirect labour costs to its two departments, F and M using number of employees per department as the cost driver. For the current year the number of employees in department F are estimated to be 80 and for M department 45 and total indirect labour costs for the departments are budgeted at $2,400,000. The amount allocated to the departments are:

Accepted Answer

A)   F $1,536,000: M $864,000
B)   F$800,000: M $1,600,000
C)   F $1,920,000: M $1,080,000
D)   F $1,600,000: M $800,000

Question 15

Which of these cost drivers is not subjective?

Accepted Answer

A)   benefits received
B)   fairness
C)   cause and effect
D)   all are subjective

Question 16

If the cost object is the payroll department in a large manufacturing firm which of these would be a direct cost?

Accepted Answer

A)   The raw materials cost of the products produced
B)   A share of the building space occupied based on percentage of floor space used
C)   the payroll department manager's yearly bonus payment
D)   The salaries of the shop floor employees that are paid by the payroll department staff

Question 17

Support department cost allocation is necessary for the preparation of externally issued financial statements.

Accepted Answer

A) True 
 B)False

Question 18

Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?

Accepted Answer

A)   accounts
B)   security
C)   computing departments
D)   none of the above, i.e. all would be considered support departments for a manufacturer

Question 19

Trucker industries provides the following information about departmental consumption of allocation bases for its 3 support and 2 operating departments.  For the step-down method, what proportion of the Cafeteria's costs will be allocated to the Maintenance Department if the allocation order is Personnel, Cafeteria and Maintenance?

Accepted Answer

A)   11.1%
B)   10%
C)   8.1%
D)   30%

Question 20

Direct costs are costs that can be directly linked to a cost object by physical tracking.

Accepted Answer

A) True 
 B)False

Exam 3: A Costing Framework and Cost Allocation

Sales Smart allocates advertising expenses to its two departments, F and M, using sales as the cost driver. For the current year the sales for department F are estimated to be $900,000 and for department M $600,000 and total advertising expenses are budgeted at $55,000. The indirect cost rate is:

Correct Answer
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The cost driver that is a volume based cost driver is:

Correct Answer
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As the number of cost pool increases the accuracy of the cost information decreases.

Correct Answer
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Support department cost allocations should never be made when the information is to be used to evaluate the performance of an operating department manager.

Correct Answer
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Which statement concerning the step-down method of allocating support department costs is not correct?

Correct Answer
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Which of these statements concerning the determination of the full cost of a cost object is not true?

Correct Answer
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B

When discussing costing the indirect cost rate is:

Correct Answer
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The allocation method for support department costs that allocates fixed and variable costs separately is:

Correct Answer
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The allocation method for support department costs that can manipulate the costs allocated by changing the order of the support department cost allocation is:

Correct Answer
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B

The allocation of indirect costs to cost objects is likely to be inaccurate if the allocation base used is not a cost driver.

Correct Answer
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The reason for allocating indirect costs is:

Correct Answer
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The allocation order of support department costs does not matter if the reciprocal method of allocation is used

Correct Answer
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True

The distinction between direct costs and indirect costs depends on their traceability to

Correct Answer
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Correct Answer
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Which of these cost drivers is not subjective?

Correct Answer
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If the cost object is the payroll department in a large manufacturing firm which of these would be a direct cost?

Correct Answer
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Support department cost allocation is necessary for the preparation of externally issued financial statements.

Correct Answer
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Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?

Correct Answer
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Correct Answer
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Direct costs are costs that can be directly linked to a cost object by physical tracking.

Correct Answer
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Exam 3: A Costing Framework and Cost Allocation

Sales Smart allocates advertising expenses to its two departments, F and M, using sales as the cost driver. For the current year the sales for department F are estimated to be $900,000 and for department M $600,000 and total advertising expenses are budgeted at $55,000. The indirect cost rate is:

Correct AnswerverifiedShow Answer

The cost driver that is a volume based cost driver is:

Correct AnswerverifiedShow Answer

As the number of cost pool increases the accuracy of the cost information decreases.

Correct AnswerverifiedShow Answer

Support department cost allocations should never be made when the information is to be used to evaluate the performance of an operating department manager.

Correct AnswerverifiedShow Answer

Which statement concerning the step-down method of allocating support department costs is not correct?

Correct AnswerverifiedShow Answer

Which of these statements concerning the determination of the full cost of a cost object is not true?

Correct AnswerverifiedB

When discussing costing the indirect cost rate is:

Correct AnswerverifiedShow Answer

The allocation method for support department costs that allocates fixed and variable costs separately is:

Correct AnswerverifiedShow Answer

The allocation method for support department costs that can manipulate the costs allocated by changing the order of the support department cost allocation is:

Correct AnswerverifiedB

The allocation of indirect costs to cost objects is likely to be inaccurate if the allocation base used is not a cost driver.

Correct AnswerverifiedShow Answer

The reason for allocating indirect costs is:

Correct AnswerverifiedShow Answer

The allocation order of support department costs does not matter if the reciprocal method of allocation is used

Correct AnswerverifiedTrue

The distinction between direct costs and indirect costs depends on their traceability to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of these cost drivers is not subjective?

Correct AnswerverifiedShow Answer

If the cost object is the payroll department in a large manufacturing firm which of these would be a direct cost?

Correct AnswerverifiedShow Answer

Support department cost allocation is necessary for the preparation of externally issued financial statements.

Correct AnswerverifiedShow Answer

Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Direct costs are costs that can be directly linked to a cost object by physical tracking.

Correct AnswerverifiedShow Answer

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B

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B

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True

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