Chapter 6

A system that mass-produces a single, homogenous output in a continuous process is a(n): continuous flow process. cost management system. two-stage allocation system. operation costing.

continuous flow process.

A system that provides information about the costs of processes, products, and services used and produced by an organization is a: continuous flow process. cost management system. two-stage allocation system. operations cost.

cost management system.

Cost pools are: costs that are accumulated before being allocated to cost objects on some common basis. costs that are relevant to decision-making but irrelevant to financial reporting. product costs that are assigned to cost objects using direct labor or machine hours. accounts in the product life cycle from research and development to customer service.

costs that are accumulated before being allocated to cost objects on some common basis.

In a labor intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production? Direct labor hours. Direct labor cost. Direct material cost. Machine hours.

Direct labor cost.

Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company? Material consumed. Machine hours. Direct labor hours. Electricity used.

Direct labor hours.

Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? Machine setups. Machine-hours. Direct labor-hours. Power consumption.

Direct labor-hours.

In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause: the Cost of Goods Manufactured to be understated. the ending balance in Work-in-Process to be overstated. Manufacturing Overhead to be overapplied. the debits to the Manufacturing Overhead account to be understated.

the Cost of Goods Manufactured to be understated.

The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n): continuous flow process. cost management system. two-stage allocation system. operations cost.

two-stage allocation system.

Which of the following is the correct formula to compute the predetermined overhead rate? Estimated total units in the allocation base divided by estimated total manufacturing overhead costs. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base. Actual total manufacturing overhead costs divided by estimated total units in the allocation base. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.

When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work-in-process? Direct labor dollars. Machine hours. Cost of materials used. Direct labor hours.

Machine hours.

Which of the following statements regarding the two-stage cost allocation process is (are) false? (A) If a company has three cost pools, then it should also have three different cost allocation bases. (B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems. Both A and B are false. Only B is false. Only A is false. Neither A nor B is false.

Only B is false.

A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified? The company has no service departments but many production departments. The company produces a wide selection of differing products. The company has many service departments but only one production department. The company produces a few products with similar characteristics in a few departments.

The company produces a few products with similar characteristics in a few departments.

Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2016, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to: there will be no effect on the predetermined overhead rate. Can't tell from the information provided. overstate the predetermined overhead rate. understate the predetermined overhead rate.

overstate the predetermined overhead rate.

The cost per unit of the allocation base used to charge overhead to products is the: job cost. predetermined overhead rate. operational cost. process cost.

predetermined overhead rate.

The Cost Flow Diagram for product costing includes all of the following costs except: fixed manufacturing overhead. selling expenses. direct materials. direct labor.

selling expenses.