Chapter 6: Cost Allocation and Activity- based

Costs are allocated: - To provide information useful for decision making. - To reduce frivolous use of resources. - To encourage evaluation of internally provided services. - To calculate the "full cost" of products/services for GAAP reporting. - All of these answer choices are correct.

All of these answer choices are correct

In the cost allocation process, an allocation base: - Must be some characteristic that is common to all of the cost objectives. - Ideally should result in cost being allocated based on a cause-and-effect relationship. - Selection is not an easy matter. - All of these answer choices are correct.

All of these answer choices are correct.

The direct method of allocating costs: - Allocates service department costs to other service departments. - Allocates only direct costs. - Allocates service department costs to producing departments only. - None of these answer choices is correct.

Allocates service department costs to producing departments only.

The direct method of allocating costs: - Allocates service department costs to other service departments - Allocates only direct costs - Allocates service department costs to production departments only - Both b and c

Allocates service department costs to production departments only

In the cost allocation process, an allocation base: - Must be some characteristic that is common to all of the cost objectives - Ideally should result in cost being allocated based on a cause-and-effect relationship - Both a and b - None of the above

Both a and b

Which of the following is not an approach to cost allocation? - Contribution margin. - Ability to bear costs. - Relative benefits. - Cause-and-effect relationship.

Contribution margin.

Controllable costs for the manager of Production Department A include: - Costs of the finance department. - Costs of material and labor used in Department A. - All costs related to Department A's final product. - All of these answer choices are correct.

Costs of material and labor used in Department A.

An important concern in forming a cost pool is to: - Avoid placing similar costs in the same pool. - Limit the number of costs that make up the pool. - Ensure that the costs in the pool are homogeneous, or similar. - None of these answer choices is correct.

Ensure that the costs in the pool are homogeneous, or similar.

When fixed costs are stated on a per unit basis: - Fixed costs are said to be controllable - Fixed costs may appear to be variable to managers receiving allocations - A lump-sum allocation has been made - Divisions with high sales receive a low amount of allocated costs

Fixed costs may appear to be variable to managers receiving allocations

When fixed costs are stated on a per unit basis: - They are called "lump sum" allocations. - Fixed costs may appear to be variable to managers receiving allocations. - Decision making is greatly improved. - All of these answer choices are correct.

Fixed costs may appear to be variable to managers receiving allocations

If frivolous use of company resources does not create additional costs, why should the company discourage it? - Frivolous use of company resources is going to happen regardless of whether it is discouraged or not, so a company should not waste time trying to discourage it. - Frivolous use of company resources always promotes employee satisfaction. - Determining a method to allocate frivolous use of company resources is impossible to trace. - Frivolous use of company resources may have hidden costs.

Frivolous use of company resources may have hidden costs.

In allocating costs to products, more accurate costing is generally obtained by: - Allocating costs using labor hours as the allocation base. - Having more than one cost pool. - Always using allocation bases that are based on production volume. - None of these answer choices is correct.

Having more than one cost pool.

Most companies that use an activity-based costing system use: - No cost pools. - One or two cost pools. - Two to five cost pools. - More than five cost pools.

More than five cost pools.

Cost drivers in activity-based costing: - Are always related to production volume. - Are workers who influence cost control. - Often assign more costs to low-volume products than traditional allocation methods. - None of these answer choices is correct.

Often assign more costs to low-volume products than traditional allocation methods.

In a boat manufacturing company, which of the following would not be considered a production department? - Assembly. - Painting. - Welding. - Purchasing.

Purchasing

In the cost allocation process, the cost objective is the: - The allocation base used to allocate the costs - A grouping of individual costs whose total is allocated using one allocation base - The product, service or department that is to receive the allocation - None of the above

The product, service or department that is to receive the allocation

Which of the following is not a volume-related cost driver? - Direct labor hours - Direct labor cost - Machine time - Time to set up a production run

Time to set up a production run

All of the following are reasons indirect costs are allocated to products, services and departments, except: - To improve decision making - To reduce frivolous use of resources - To provide information on variable and fixed costs - To encourage evaluation of services

To provide information on variable and fixed costs

Which of the following is not a reason why firms allocate costs? - To calculate the full cost of products for GAAP reporting. - To provide information for decision making. - To smooth earnings for departments that would otherwise show a net loss. - All of the above are reasons why firms allocate costs.

To smooth earnings for departments that would otherwise show a net loss.

One way to avoid the problems associated with unitized fixed costs is to: - Not allocate fixed costs. - Use a lump-sum method of allocating fixed costs. - Combine fixed and variable costs in a single cost pool. - None of these answer choices is correct

Use a lump-sum method of allocating fixed costs.

Although allocated costs should measure the opportunity cost of using a company resource, this is often difficult to operationalize because? - non-manufacturing costs cannot reasonably be traced to products. - opportunity costs may change quickly. - the expense of the allocation process outweighs the benefit. - allocation of company resources always encourages inefficiencies in the manufacturing process.

opportunity costs may change quickly.