Unit 11 Questions

Question 11.2.16

"Using the direct method, the total amount of overhead allocated to each machine hour at Rochester would be"

The following information pertains to a by-product called Moy: Sales for the month 5,000 units Selling price per unit $6 Selling costs per unit $2 Processing costs $0 Inventory of Moy was recorded at net realizable value when produced in the previous month. No units of Moy were produced in the month just ended. What amount should be recognized as profit on Moy's sales? A. $0 B. $10,000 C. $20,000 D. $30,000

A. 0

The variable costs of support departments most likely should be allocated to production departments by using A. Actual short-run output based on predetermined rates. B. Actual short-run output based on actual rates. C. The support department's expected costs of long-run capacity. D. The support department's actual costs based on actual use of services

A. Actual short-run output based on predetermined rates.

A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool? A. Establish separate pools for variable and fixed costs. B. Assign prime costs and variable administrative costs to the same pool. C. Establish a separate pool for each assembly line worker to account for wages. D. Assign all manufacturing costs related to the project to the same pool.

A. Establish separate pools for variable and fixed costs.

The method of accounting for joint product costs that will produce the same gross profit rate for all products is the A. Relative sales-value method. B. Physical-measure method. C. Actual costing method. D. Services-received method.

A. Relative sales-value method.

Under an acceptable method of costing by-products, inventory costs of a by-product are based on the portion of the joint production cost allocated to a by-product plus any subsequent processing cost. Why was joint cost allocated to by-products? A. They were treated as joint products even though they presumably met the definition of by-products because of their small relative sales values. B. All by-products must be allocated some portion of joint costs. C. Such allocation is required by the Cost Accounting Standards Board (CASB). D. The by-products produced a loss.

A. They were treated as joint products even though they presumably met the definition of by-products because of their small relative sales values.

If the values of by-products are recorded as produced, why should they be recorded at net realizable value minus normal profit? A. To permit a sales profit to be recognized upon sale. B. To be valued at the lower of cost or market. C. To control the loss upon sale. D. To recognize a profit when the inventory value is recorded.

A. To permit a sales profit to be recognized upon sale.

For purposes of allocating joint costs to joint products, the relative sales-value method could be used in which of the following situations? A. Yes Yes B. Yes No C. No Yes D. No No

A. Yes Yes

The allocation of general overhead costs to operating departments can be least justified in determining A. Income of a product or functional unit. B. Costs for short-term decisions. C. Costs of products sold and remaining in inventory. D. Costs for the federal government's cost-plus contracts.

B. Costs for short-term decisions.

Allocation of support department costs to the production departments is necessary to A. Control costs. B. Determine overhead rates. C. Maximize efficiency. D. Measure use of plant capacity.

B. Determine overhead rates.

Kode Co. manufactures a major product that gives rise to a by-product called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a by-product to a joint product, what would be the effect on Kode's overall gross margin? A. No effect. B. Gross margin increases by $1 for each unit of May sold. C. Gross margin increases by $3 for each unit of May sold. D. Gross margin increases by $4 for each unit of May sold.

B. Gross margin increases by $1 for each unit of May sold.

Copeland, Inc., produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: Selling price per pound of X-547 Variable manufacturing costs of upgrade process Avoidable fixed costs of upgrade process Selling price per pound of Xylene Joint manufacturing costs to produce X-547 Which items should be reviewed when making the upgrade decision? A. I, II, and IV. B. I, II, III, and IV. C. All items. D. I, II, IV, and V.

B. I, II, III, and IV.

Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation? A. Evaluating revenue center performance. B. Measuring income and assets for external reporting. C. Budgeting cash and controlling expenditures. D. Aiding in variable costing for internal reporting.

B. Measuring income and assets for external reporting.

Which of the following would be a reasonable basis for allocating the materials handling costs to the units produced in an activity-based costing system? A. Number of production runs per year. B. Number of components per completed unit. C. Amount of time required to produce one unit. D. Amount of overhead applied to each completed unit.

B. Number of components per completed unit.

The step-down method of support department cost allocation often begins with allocation of the costs of the support department that A. Provides the greatest percentage of its support to the production departments. B. Provides the greatest percentage of its support to other support departments. C. Provides the greatest total output of support. D. Has the highest total costs among the support departments.

B. Provides the greatest percentage of its support to other support departments.

Which of the following statements best describes cost allocation? A. A company can maximize or minimize total company income by selecting different bases on which to allocate indirect costs. B. A company should select an allocation base to raise or lower reported income on given products. C. A company's total income will remain unchanged no matter how indirect costs are allocated. D. A company should ordinarily allocate indirect costs randomly or based on an ability-to-bear criterion.

C. A company's total income will remain unchanged no matter how indirect costs are allocated.

One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound, and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6.00. What is the effect on profits of further processing product Y into product Z? A. $60 increase. B. $30 increase. C. No change. D. $60 decrease.

C. No change.

Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product A. But any subsequent processing cost is debited to the cost of the main product. B. But any subsequent processing cost is debited to revenue of the main product. C. Plus any subsequent processing cost. D. Minus any subsequent processing cost.

C. Plus any subsequent processing cost.

A company has two production and two support departments that are housed in the same building. The most reasonable basis for allocating building costs (rent, insurance, maintenance, security) to the production and support departments is A. Direct labor hours. B. Number of employees. C. Square feet of floor space occupied. D. Direct materials cost.

C. Square feet of floor space occupied.

The fixed costs of support departments should be allocated to production departments based on A. Actual short-run use based on predetermined rates. B. Actual short-run units based on actual rates. C. The support department's expected costs of long-run capacity. D. The support department's actual costs based on actual use of services.

C. The support department's expected costs of long-run capacity.

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base? A. Units of product sold. B. Salary of service department employees. C. Units of electric power consumed. D. Direct materials usage.

C. Units of electric power consumed.

Cost objects A. May be intermediate if the costs charged are later reallocated to another cost object. B. May be final if the cost object is the job, product, or process itself. C. Should be logically linked with the cost pool. D. All of the answers are correct.

D. All of the answers are correct.

Actual sales values at the split-off point for joint products Y and Z are not known. For purposes of allocating joint costs to products Y and Z, the relative sales value at split-off method is used. An increase in the costs beyond split-off occurs for Product Z, while those of Product Y remain constant. If the selling prices of finished products Y and Z remain constant, the percentage of the total joint costs allocated to Product Y and Product Z will A. Decrease for Product Y and Product Z. B. Decrease for Product Y and increase for Product Z. C. Increase for Product Y and Product Z. D. Increase for Product Y and decrease for Product Z.

D. Increase for Product Y and decrease for Product Z.

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the A. Dual-rate allocation method. B. Direct allocation method. C. Step-down allocation method. D. Simultaneous-equations method.

D. Simultaneous-equations method.

Several methods are used to allocate support department costs to the production departments. The method that recognizes support provided by one department to another but does not allow for two-way allocation of costs among support departments is the A. Direct method. B. Linear method. C. Reciprocal method. D. Step-down method.

D. Step-down method.