Chapter 15

___________ is a cost that the contract parties agree to include in the costs to be reimbursed A. An allowable cost B. An unallowable cost C. An incremental cost D. A stand-alone cost

A. An allowable cost

The cost-allocation method that allocates support dept. costs only to production dept. is the: A. direct method B. incremental method C. step-down method D. reciprocal method

A. direct method

Benefits of the single-rate method include: A. it is easier to calculate B. FC that are transformed into VC for user decision making C. signals regarding how variable & FC behave differently D. info that leads to outsourcing decisions that benefit the organization as a whole

A. it is easier to calculate

The method LEAST likely to cause disputes among product managers is: A. stand-alone revenue-allocation method B. incremental revenue-allocation method C. the direct revenue-allocation method D. ALL

A. stand-alone revenue-allocation method

The step-down allocation method: A. typically begins with the support dept. that provides the highest % of its total services B. recognizes the total amount of services that support dpt. provide to each other C. allocates complete reciprocated costs D. offers key input for outsourcing decisions

A. typically begins with the support dept. that provides the highest % of its total services

The support dept. allocation that is the most widely used bc of its simplicity is the: A. step-down method B. reciprocal allocation method C. direct allocation method D. sequential allocation method

C. direct allocation method

Which of the following dept. is NOT an operating (or value added) dept? A. Machining B. Accounting C. Assembly D. Finishing

B. Accounting

Which of the following dept. is NOT a support dept. for a boat manuf company? A. Personnel B. Molding & assembly C. Data processing D. Accounting

B. Molding & assembly

_______ occurs when revenues, related but NOT traceable to individual products, are assigned to those individual products A. Revenue tracing B. Revenue allocation C. Stand-along pricing D. Reciprocal pricing

B. Revenue allocation

To discourage unnecessary use of a support department, management might: A. not allocate any support department costs to user dept. B. allocate support dept. costs based upon user dept. usage C. allocate a fixed amount of support dept. costs to each dept. regardless of use D. issue memos on useful services provided by the support dept.

B. allocate support dept. costs based upon user dept. usage

Complete reciprocated costs: A. are less than the support dept.'s own costs B. include the support dept's costs plus any interdepartmental cost allocations C. are used for step-down allocations D. are also referred to as budgeted costs

B. include the support dept's costs plus any interdepartmental cost allocations

Which of the following is NOT one of the 3 methods of allocating support dept. costs to operating dept? A. direct method B. incremental method C. step-down method D. reciprocal method

B. incremental method

The advantage of using practical capacity to allocate costs: A. is that it allows a downward demand spiral to develop B. is that it focuses management's attention on managing unused capacity C. is that budgets are much easier to develop D. Either A or B are correct

B. is that it focuses management's attention on managing unused capacity

When budgeted cost-allocations rate are used: A. variations in actual usage by 1 division affect the costs allocated to other divisions B. the manager of the supplier division bears the risk of unfavorable cost variances C. user divisions pay for costs that exceed budgeted amount D. user divisions pay for inefficiencies of the supplier department

B. the manager of the supplier division bears the risk of unfavorable cost variances

The dual-rate cost-allocation method classifies costs in each cost pool into a: A. budgeted-cost pool & ab actual-cost pool B. variable-cost pool & a fixed-cost pool C. used-capacity-cost pool & a practical-capacity-cost pool D. direct-cost pool & a reciprocal-cost pool

B. variable-cost pool & a fixed-cost pool

______ is a package of 2 or more products (or services) that is sold for a single price but whose individual components may be sold separate items at their own "stand-alone" prices A. An assembly B. A subassembly C. A bundled product D. A good deal

C. A bundled product

AAA offers towing services, auto routing, travel brochures, & other travel services for 1 annual fee. This is an example of: A. revenue tracing B. revenue allocation C. a bundled product D a joint product

C. a bundled product

The practical capacity method of allocating costs is: A. based on the budgeted capacity demanded B. based on actual capacity used C. based on the practical capacity supplied D. based on the using dept. negotiating the charged they will accept

C. based on the practical capacity supplied

Under the stand=alone method of allocating common costs: A. a ranking is used to allocate costs among the users B. disputes can arise over who is the primary user C. each party bears a proportionate share of the total costs in relation to their individual stand-alone costs D. an incentive is created to be the first-ranked user

C. each party bears a proportionate share of the total costs in relation to their individual stand-alone costs

The reciprocal allocation method: A. is the most widely used bc of its simplicity B. requires the ranking of support dept. in order that the allocation is to proceed C. is conceptually the most precise D. results in allocating more support costs to operating dept. than actually incurred

C. is conceptually the most precise

Cost-based prices: A. are 1 way of setting prices in a competitive market B. provide an inherit incentive for the producer to control costs C. pass the majority of risk to the buyer D. are required in all govt contracts

C. pass the majority of risk to the buyer

The cost of unused capacity are highlighted when: A. actual usage based allocations are used B. budgeted usage allocation are used C. practical capacity-based allocations are used D. the dual-rate cost-allocation method allocates FC based on actual usage

C. practical capacity-based allocations are used

The method that allocates costs by explicitly including all the services rendered among all support dept. is the: A. direct method B. step-down method C. reciprocal method D. sequential method

C. reciprocal method

The method that allocates costs in each cost pool using the same rate per unit is known as the: A. incremental cost-allocation method B. reciprocal cost-allocation method C. single-rate cost-allocation method D. dual-rate cost-allocation method

C. single-rate cost-allocation method

Special cost-allocation problems arise when: A. support dept. costs exceed budgetary estimates B. practical capacity is used as the allocation base C. support dept. provide reciprocal services to other support dept. D. there is more than 1 operating dept.

C. support dept. provide reciprocal services to other support dept.

When actual cost-allocation rates are used: A. user divisions pay for costs that exceed budgeted amount B. managers of the supplier division are motivated to improve efficiency C. user divisions do not know allocated amounts until the end of the accounting period D. managers of the user divisions may be tempted to underestimate planned usage

C. user divisions do not know allocated amounts until the end of the accounting period

An example of a revenue object is a: A. customer B. specific product C. division of a company D. ALL

D. ALL

Contract disputes regarding cost allocation can be reduced by defining: A. the cost items allowed B. the term used, such as what constitutes DL C. permissible cost-allocation base D. ALL

D. ALL

The method that ranks individual products for revenue allocation might include: A. surveying customers on the importance of each product B. using recent data on stand-alone sales performance C. having managers use their knowledge & intuition D. ALL

D. ALL

The revenue allocation may be weighted using physical units when" A. the individual products within the bundle have approximately the same value B. SP are unstable & unit costs are difficult to calculate C. other methods cannot be used for various reasons D. ALL

D. ALL

The single-rate cost-allocation method may base the denominator choice on: A. master-budget capacity utilization B. normal capacity utilization C. practical capacity D. ALL

D. ALL

Businesses offer bundled products to: A. increase customer exposure B. increase overall company profitability C. avoid the problems of revenue allocation D. Both A & B are correct

D. Both A & B are correct

All contracts with U.S govt agencies must comply with cost acct standards issued by the: A. FASB B. SEC C. IRS D. CASB

D. CASB

When using the single-rate method, FC allocation may be based on: A. actual usage B. budgeted usage C. incremental cost allocation D. Either A or B are correct

D. Either A or B are correct

In certain high-cost defense contracts involving new weapons & equipment, contracts are rarely subject to competitive bidding because: A. the govt' is concerned that 1 firm might monopolize defense contracts B. there is an implicit agreement among defense contractors to "share contracts" C. all defense contractors have essentially the same cost structure D. NONE

D. NONE

A cost of operating a facility, dept., activity area, or like cost object that is shared by 2 or more users is called a: A. direct cost B. joint cost C. FC D. common cost

D. common cost

The biggest advantage of using practical capacity to allocate costs is that it: A. is a value that is readily available B. never causes over or under-allocated OVH C. burdens the user divisions with the costs of unused capacity D. focuses management's attention on unused capacity

D. focuses management's attention on unused capacity

Benefits of the dual-rate method include: A. VC that are transformed into FC for user decision making B. the low cost of implementation C. avoidance of expensive analysis for categorizing costs as either fixed or variable D. info that leads to outsourcing decisions that benefit the organization as a whole

D. info that leads to outsourcing decisions that benefit the organization as a whole

The direct allocation method: A. partially recognizes the services among support dept. B. is also referred to as the sequential method C. is conceptually the most precise method D. results in allocating only the support used by operating dept.

D. results in allocating only the support used by operating dept.

To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using: A. SP B. unit costs C. physical units D. stand-alone product revenues

D. stand-alone product revenues

Under which allocation method are 1-way reciprocal support services recognized? A. direct method B. artificial cost method C. reciprocal method D. step-down method

D. step-down method

Under the incremental method of allocating common costs: A. the parties are interested in being viewed as primary users B. each party bears a proportionate share of the total costs in relation to their individual stand-alone costs C. fairness & equity are emphasized D. there is a disincentive to be titled the primary user

D. there is a disincentive to be titled the primary user

Under the dual-rate cost-allocation method, when FC are allocated based on actual usage then: A. user-division managers are motivated to make accurate long-run usage forecasts B. user-division managers can better plan for the short-run usage forecasts C. the costs of unused capacity are highlighted D. variations in 1 division's usage affect another division's allocation

D. variations in 1 division's usage affect another division's allocation