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Exam 4: Cost Accumulation, Tracing, and Allocation

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Question 1

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Cost allocation involves:

A) Identifying a cost driver for each cost to be allocated.
B) Calculating an allocation rate for each cost to be allocated.
C) Multiplying the allocation rate by the weight of the cost driver.
D) All of the answers are correct.

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

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Question 2

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Select the term from the list provided that best describes each of the following descriptions.

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Question 3

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

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?

Morris Company makes one product, and it expects to incur a total of $600,000 in indirect (overhead) costs during the current year. Production of the product for the year is expected to be: Required: $\begin{array} { | l | l | l | r | r | } \hline & { \text { Quarter } } \\\hline & 1 & 2 & 3 & 4 \\\hline \begin{array} { l } \text { Estimated } \\\text { production in } \\\text { units }\end{array} & 40,000 & 15,000 & 27,000 & 38,000 \\\hline\end{array}$ 1) Calculate a predetermined overhead rate based on the number of units of product expected to be made during the current year.2) Assuming that direct materials and direct labor costs are $10 and $15, respectively, determine the total cost per unit using the overhead rate you calculated in part (1).

Why is a company's selection of cost allocation methods important to individual managers?

How do you account for costs incurred before the split-off point? How do you account for costs incurred after the split-off point?

Jiminez Company paid its annual property tax of $6,000 on its manufacturing facility in January. The company expects to make 4,000 units of product during the year. During January, 300 units of product were produced. Based on this information:

Sheddon Industries produces two products. The products' identified costs are as follows: The company's overhead costs of $108,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round your intermediate calculations.) $\begin{array} { | l | c | l | } \hline & \text { Product A } & \text { Product B } \\\hline \text { Direct materials } & \$ 20,000 & \$ 15,000 \\\hline \text { Direct labor } & 12,000 & 24,000 \\\hline\end{array}$

Indicate whether each of the following statements is true or false.Indirect costs are traced to cost objects.Cost drivers are used to allocate indirect costs to cost objects.An allocation rate is calculated by dividing the allocation base by the total cost to be allocated.A cost driver must be identified for each cost pool that is to be allocated.Depreciation on a building might be allocated to the departments sharing the building based on the number of square feet occupied by each department.

For a manufacturer, measures of volume may include:

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

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:

Vanguard Company makes three products, M, N, and P, which come from a joint process. The joint costs for each batch of the products are: $80,000 for direct materials, $40,000 for direct labor, and $30,000 for indirect costs (overhead). Each batch produces 10,000 pounds of product M with a market value of $6 per pound; 5,000 pounds of N with a market value of $12 per pound; and 9,000 pounds of P with a market value of $10 per pound.Required: 1) Determine the total amount of joint cost allocated to each of the products, assuming that the allocation is based on the weight of products produced. (Do not round your intermediate calculations. Round each of your final answers to the nearest whole dollar.) 2) Determine the total amount of joint cost allocated to each of the products, assuming that the allocation is based on the market value of the products. (Do not round your intermediate calculations. Round each of your final answers to the nearest whole dollar.)

Joint products A and B emerge from common processing that costs $200,000 and yields 2,000 units of Product A and 1,000 units of Product B Product A can be sold for $100 per unit. Product B can be sold for $120 per unit. How much of the joint cost will be assigned to Product A if joint costs are allocated on the basis of relative sales values? (Do not round your intermediate calculations.)

Indicate whether each of the following statements is true or false.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.Availability and cost of information are likely to influence a company's choice of cost drivers.A company should never use a cost driver unless there is a strong causal relationship between the cost and the cost driver.Different cost drivers almost always give about the same results when a cost is allocated to cost objects.In allocating costs among departments, a company must consider how department managers are likely to respond.

How are indirect costs assigned to cost objects? Are they traced to cost objects?

Inaccurate allocation of joint costs to the individual products could cause an unprofitable product to appear to be profitable.

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

Cost accumulation is used to: