ACCT 3203 Chapter 7

The cost allocation methods that are most acceptable to international tax authorities are based on

1) Sales 2) Labor costs

Relevant factors in deciding whether or not to sell a joint product at the split-off point or to add additional processing and sell the product after the additional processing include:

1) Separable costs 2) Prices before and after additional processing

Which of the following are likely to be inappropriate methods for assigning maintenance service department costs?

1) Square feet of space occupied by each department 2) Labor hours in each department 3) Number of employees in each department

The decision to sell before or after additional processing should be based on:

Increase in sales value vs. separable processing costs

Firms can reduce their worldwide tax liability by ______ the cost of products or services purchased in high-tax countries

Increasing

Items such as pounds, gallons, or yards are used to allocate joint costs when using the _____ _____ method

Physical measure

Separate production process can be applied to individual products after the

Split-off point

Separate production processes can be applied to individual products after the:

Split-off point

Cost allocation is accomplished by starting with one service department and allocating al its costs to other service and production departments when using the _______ method

Step

Cost allocation is accomplished by starting with one service department and allocating all its costs to other service and production departments when using the _______ method

Step

The desired cost allocation method might differ for cost management, financial reporting, and

Tax compliance

In a mortgage company, administration is most likely a(n) ______ department

Service

The fact that market prices for some industries change constantly is a disadvantage of the _______ method of cost allocaiton

Sales value at split-off

The fact that market prices for some industries change constantly is a disadvantage of the ______ method of cost allocation

Sales value of split-off

Additional costs after the split-off point that can be identified directly with individual products are called _______ _______ costs

Separable processing

Some organizations are required by law or regulation to use the department approach for cost reporting and cost reimbursement

True

Outputs of joint production process include:

1) By-products 2) Spoiled units 3) Joint products

When the cost allocation base is unrelated to usage:

1) Departments may be unfairly charged for increased use by others 2) There is no incentive to limit the use of the cost

Common methods to allocate costs for the second phase include:

1) Step 2) Reciprocal 3) Direct

Tracing variable cost based on actual usage and sharing fixed costs either equally or with a predetermined budgeted proportion is called

Dual allocation

Allocated costs are always an insignificant factor in the profitability of a service industry unit

False

Joint costs cannot be incurred in a service department

False

When cost is allocated based on actual usage, resource usage by one department has no impact on costs allocated to other departments

False

Outputs from a shared production process that have relatively substantial sales value are called

Joint Products

If joint products require additional processing after the split-off point before they can be sold, the concept of ______ _______ value is used to allocate joint costs

Net Realizable

If joint products require additional processing after the split-off point before they can be sold, the concept of _________ ______ value is used to allocate joint costs

Net realizable

Which of the following is NOT a common cost driver used in departmental cost allocation

Number of different products produced

To motivate managers to reduce disruptions in production, the BEST allocation basis for equipment maintenance cost is:

Number of machine breakdowns

When the cost allocation is based on outside purchase price, the amount allocated to a given department is based on the:

Outside price of the service to that department, relative to the total outside price for all departments

The flow of services back and forth between service departments are often called ______ flows

Reciprocal

The preferred of the three methods of cost allocation is the _____ method

Reciprocal

All reciprocal flows are recognized when using the:

Reciprocal method only

When cost usage differs significantly between departments and over time, dual allocation

Should allocate fixed costs based on a predetermined budget

Reciprocal costs for service departments can be calculated using Excel's ______ function

Solver

Individual products in a joint product process emerge at the:

Split-off point

When compared to the physical measure method, the net realizable value method produces an allocation that:

Yields a comparable level of profitability among the products

Objectives of the strategic role of cost allocation include:

1) Determining accurate costs for use in performance evaluation, decision making, and compensation 2) Motivating managers to exert a high level of effort 3) Providing incentives that align performance with strategic goals

Advantages of the sales value at split-off method for cost allocation include it:

1) Incorporates the ability-to-bear concept for fairness 2) Incorporates the products' revenue generating capability 3) Is easy to calculate

Factors that can cause ethical issues in cost allocation include:

1) International differences in tax rates 2) Cost-plus and competitive pricing issues when producing for both private-competitive and governmental customers 3) Cost reimbursement to a private company by a governmental unit

Limitations of the physical measure include:

1) It ignores the revenue-producing capability of the products 2) Physical measures may differ between the products

The three step approach to cost allocation allocates:

1) Production department costs to the products 2) Service department costs to production departments

An extended and improved version of the two-step departmental method is introduced in this chapter. Unlike the two-step method:

Distinguishes the service and production departments

A major advantage of cost allocation methods is that they:

Draw mangers' attention to shared facilities

An extended and improved version of the two-step departmental method is introduced in this chapter. Unlike the two-step approach this method:

Distinguishes service and production departments

The use of total sales as a base in cost allocation is an example of:

Ability-to-bear

The most unbiased choice for cost allocation is:

Cause and effect

The key implementation issue is:

Choosing the most accurate allocation method

Manufacturers using cost allocation methods have an incentive to shift costs from:

Competitive products to cost-plus products

In order to promote efficiency and fairness when allocating costs:

Cost allocations should be based on the cost of obtaining the service externally

When a company has homogeneous products and processes the ______ approach is the preferred method for cost allocation

Departmental

Cost allocation is accomplished by using the service flows only to production departments when using the:

Direct method only

When a company has two departments (A & B) and the allocation base for a cost is actual usage:

If department A decreases usage and department B usage stays the same, department B will receive an unexpected increase in allocated cost

The most important cost allocation method objective is:

Accuracy

The most accurate cost allocation method is the ____ approach

Activity-based costing

Departmental cost allocation can be useful in:

All types of organizations, manufacturing, service, and not-for-profit

Which method for allocating joint costs can only be used when joint products can be sold at the split-off point?

Relative sales value

If joint products are not salable at the split-off point, the relative _______ _______ method cannot be used to allocate joint costs

Sales value

Engineering, IT, and human resources are all examples of ______ departments

Service