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Exam 4: Cost Accumulation, Tracing, and Allocation

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Question 81

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Cobalt Company management has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of operating the factory Cost Object 3: The cost of a particular product made in June With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified? $\begin{array}{lll}&\text { Object } 1 & \text { Object } 2 & \text { Object } 3 \\A. &\text { Direct } & \text { Direct } & \text { Direct } \\B. &\text { Direct } & \text { Direct } & \text { Indirect } \\C.&\text { Indirect } & \text { Indirect } & \text { Indirect } \\D. &\text { Indirect } & \text { Indirect } & \text { Direct }\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

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Question 82

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Which formula best represents the first step used to allocate an indirect cost to a cost object?

A) Total cost to be allocated divided by cost driver
B) Cost driver divided by allocation rate
C) Cost driver divided by total cost to be allocated
D) Allocation rate divided by total cost to be allocated

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Question 83

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What are cost objects? List examples of cost objects.

The management accountant at Morrison, Inc. provided the following estimated costs for producing 2,500 units of a specialty product manufactured by the firm: The company believes that direct labor hours are the most appropriate cost driver for assigning overhead costs to its product. $\begin{array} { | l | r | } \hline \text { Direct Materials } & \$ 10,000 \\\hline \text { Direct Labor (1 hour per unit) } & 5,000 \\\hline \text { Unit-level support costs } & 10,000 \\\hline \text { Batch level support costs } & 5,000 \\\hline \text { Product-level support costs } & 3,000 \\\hline \text { Faclity-level support costs } & 7,000 \\\hline\end{array}$ Required: 1) Compute the predetermined overhead rate for this company.2) Compute the specialty product's total estimated cost per unit.3) Why do firms assign overhead costs using a predetermined overhead rate instead of assigning actual costs?

The step method of allocating service department costs allocates those costs to operating departments only.

Using the direct method of allocating service department costs, the costs are allocated to:

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

Cost objects may be:

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

Which of the following statements is false?

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

Indicate whether each of the following statements is true or false.Joint costs include materials, labor and overhead costs.Joint costs are incurred in making two or more joint products.The split-off point is the point in production at which joint products are complete and ready to be sold.For financial reporting, joint costs must be allocated to the separate joint products.The allocation of joint costs to the individual products affects cost of goods sold on the income statement but does not affect the balance sheet.

Indicate whether each of the following statements is true or false.Cost accumulation refers to identifying whether a particular cost is fixed or variable.NOTE THAT I REMOVED ANSWERS AND THEN COPIED TABLE WITH ANSWERS INTO THE ANSWER PORTION OF THE TAGGING SECTION Cost objects may be departments, sales territories, or individual products.Cost accumulation is not useful in a service-type business.An allocation base has a cause-and-effect relationship with a cost object.Timeliness of managerial accounting information is more important than its precision.NOTE THAT I REMOVED ANSWERS AND THEN COPIED TABLE WITH ANSWERS INTO THE ANSWER PORTION OF THE TAGGING SECTION

The accuracy of managerial accounting information usually is more important than timeliness.

Illustrate with examples how cost definitions are independent and context sensitive. In other words, indicate how a cost can be classified as fixed or variable and direct or indirect, depending on the situation.

Sometimes, several types of costs are accumulated into a single total for the purpose of cost allocation. This single total is referred to as a joint cost.