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41. All of the following illustrate purposes for allocating costs to cost objects EXCEPT

c. to determine a selling price the market will bear.

79. Customer actions will LEAST affect

d. distribution-channel costs.

82. The allocation of corporate-sustaining costs is useful for

d. none of the above.

46. To guide cost allocation decisions, the cause-and-effect criterion

b. is the primary criterion used in activity-based costing.

78. An advantage of using a bar chart to visualize customer profitability is that

b. loss customers stand out.

68. Customers making large contributions to the profitability of the company should

b. receive a higher level of attention from the company than less profitable customers.

59. When individual activities within a cost pool have a similar relationship with the cost driver, those costs

c. are considered a homogeneous cost pool.

56. Some companies only allocate corporate costs to divisions that

c. are perceived as causally related to division activities.

66. What amount of interest costs should be allocated to the Electric Lamp Division?

a. $450,000 $6,000,000 / $20,000,000 x $1,500,000 = $450,000

50. Which cost-allocation criterion is appropriate when making an economic decision?

a. The fairness or equity criterion b. The ability to bear criterion c. The cause-and-effect criterion d. Any of the above criteria are appropriate

43. R&D costs are used for which purpose of cost allocation?

a. To provide information for economic decisions

45. Which purpose of cost allocation is used to decide on the selling price for a customized product or service?

a. To provide information for economic decisions

76. Costs incurred to handle each unit sold would MOST likely be classified as

a. a customer output unit-level cost.

81. Corporate-sustaining costs

a. are common to all individual customers.

86. A common finding in many studies is that a high percentage of operating income is

a. contributed by a small number of customers.

3. Homogeneity is used to

a. develop cost pools in which the costs have the same or similar cost-allocation base.

72. A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of

a. different types of cost drivers. b. different benefits-received relationships. c. different levels of cause-and-effect relationships. d. all of the above.

48. To guide cost allocation decisions, the fairness or equity criterion

a. is the criterion often cited in government contracts.

60. Homogeneous cost pools lead to

a. more accurate costs of a given cost object.

40. Indirect costs

a. often comprise a large percentage of overall costs assigned to a cost object.

61. Identifying homogeneous cost pools

a. requires judgment and should be reevaluated on a regular basis. b. should include the input of management. c. should include a cost-benefit analysis. d. should include all of the above

95. The sales-mix variance will be unfavorable when

a. the actual sales mix shifts toward the less profitable units.

64. To manage setup costs, a corporation might focus on

a. the number of setup-hours. c. the batch-level costs incurred per setup-hour.

92. More insight into the sales-volume variance can be gained by subdividing it into

a. the sales-mix variance and the sales-quantity variance.

69. Price discounts are influenced by

a. the volume of product purchased. b. a desire to sell to a customer in an area with high-growth potential. c. negotiating skills of the sales person. d. all of the above.

55. The MOST likely reason for NOT allocating corporate costs to divisions include that

a. these costs are not controllable by division managers.

53. Corporate overhead costs can be allocated

a. using a single cost pool. b. to divisions using one cost pool and then reallocating costs to products using multiple cost pools. c. using numerous individual corporate cost pools. d. using any of the above methods.

42. The costs of all six value-chain functions should be included when determining

a. whether to add a new product line. b. the selling price of a service. c. whether to make or buy a component part from another manufacturer. D. all of the above.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 65 THROUGH 67. The Hassan Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $20,000,000 bond issuance, the Electric Mixer Division utilized $14,000,000 and the Electric Lamp Division utilized $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year.

b. $1,050,000 $14,000,000/ $20,000,000 x $1,500,000= $1,050,000

44. Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services?

b. To motivate managers and other employees

39. Any item for which a separate measurement of cost is desired is known as

b. a cost object.

73. Costs incurred to process orders would MOST likely be classified as

b. a customer batch-level cost.

93. The budgeted contribution margin per composite unit for the budgeted mix can be computed by

b. dividing the total budgeted contribution margin by the total budgeted units.

54. The MOST likely reason for allocating all corporate costs to divisions include that

b. divisions receive benefits from all corporate costs.

89. Dropping an unprofitable customer will

b. eliminate most short-run costs assigned to that customer.

63. Corporate administrative costs allocated to a division cost pool are MOST likely

b. facility-sustaining costs

83. If deciding whether to eliminate a distribution channel, allocating corporate-sustaining costs to distribution channels

b. gives the misleading impression of potential cost savings.

62. To allocate corporate costs to divisions, the allocation base used should

b. have the best cause-and-effect relationship with the costs.

84. When corporate-sustaining costs are fully allocated to distribution channels then the sum of the distribution-channel operating incomes

b. is equal to company-wide operating income.

4. Information about price discounting can be useful in analyzing revenues of customers if

b. records in the information system are kept of reductions in selling price below list price

87. Loss-causing customers

b. should be evaluated for ways to become profitable customers.

91. The static-budget variance will be favorable when

b. the actual contribution margin is greater than the static-budget contribution margin.

52. A challenge to using cost-benefit criteria for allocating costs is that

b. the benefits of making better-informed pricing decisions are difficult to measure

58. The greater the degree of homogeneity,

b. the fewer the number of needed cost pools.

70. To improve customer profitability, companies should track

b. the volume of the products purchased by each customer. c. discounts taken by each customer.

71. To improve customer profitability, companies should

b. track discounts by customer. c. track discounts by sales person.

77. _______________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships.

c. Customer cost hierarchy

5. Which of the factors that managers must consider in deciding the allocation of resources across customers might provide misleading signals about dropping a current customer?

c. Long-run customer profitability

51. Which cost-allocation criterion is MOST likely to subsidize poor performers at the expense of the best performers?

c. The ability to bear criterion

75. The cost of visiting customers would MOST likely be classified as

c. a customer-sustaining cost.

94. The sales-mix variance results from a difference between the

c. budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix.

80. To reduce distribution-channel costs, a company could

c. eliminate distribution to retailers and only service wholesalers.

2. Which of the following is considered more of an objective than a criterion?

c. fairness or equity

38. Costs which are not economically feasible to trace but are related to a cost object are known as

c. indirect costs.

67. The above interest costs would be considered a(n)

c. product-sustaining cost.

49. To guide cost allocation decisions, the ability to bear criterion

c. results in subsidizing products that are not profitable.

90. More insight into the static-budget variance can be gained by subdividing it into

c. the flexible-budget variance and the sales-volume variance.

57. Not allocating some corporate costs to divisions and products results in

c. the sum of individual product profitability being greater than overall company profitability.

85. Corporate-sustaining costs should be allocated

c. to determine the selling price that will cover all costs.

1. Which of the following is not a primary purpose given in the text for allocating costs?

d. To foster cost awareness among managers to improve decisions

74. Top management and general administration costs would MOST likely be classified as

d. a corporate-sustaining cost.

47. To guide cost allocation decisions, the benefits-received criterion

d. may use an allocation base of division revenues to allocate advertising costs.

88. Customers are more valuable when they are all EXCEPT

d. require special attention on a regular basis.

96. The sales-mix variance will be favorable when

d. the composite unit for the actual mix is greater than for the budgeted mix.