Chapter 15 ARE 119

Craylon Corp sells two products X and Y. X sells for $200 and Y sells for $150. Both X and Y sell for $300 as a bundle. What is the revenue allocated to product Y, if product X is termed as the primary product in the bundle? A) $100 B) $128.50 C) $110 D) $112.85

A) Revenue allocated to Y = $300 - $200 = $100

Which of the following is an advantage of a dual-rate method? A) It is the most widely used method in practice. B) It is less costly to implement. C) It avoids the expensive analysis for categorizing costs as either fixed or variable. D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.

It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.

Which of the following is a disadvantage of a dual-rate method? A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage. B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest. C) It allocates fixed and variable-cost pool using the same cost-allocation base, which will mislead managers in making decisions. D) It does not guide department managers to make decisions that benefit both the organization as a whole and each department.

It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage.

Which of the following is an advantage of the single-rate method? A) It is less costly to implement. B) It classifies costs as fixed and variable costs. C) It gives signals regarding how variable and fixed costs behave differently. D) It helps the managers on short-run and long-run planning due to fixed cost allocation as per budgeted usage.

It is less costly to implement

Which of the following is a disadvantage of single-rate method? A) It is very costly to implement. B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest. C) It does not signal to department managers how variable costs and fixed costs behave differently. D) It requires managers to distinguish variable costs from fixed costs, which is often a challenging

It may lead operating department managers to make sub-optimal decisions that are in their own best interest

________ occurs when revenues are related to a particular revenue object but cannot be traced to it in an economically feasible (cost-effective) way. A) Revenue estimation B) Revenue allocation C) Resource allocation D) Revenue optimization

Revenue allocation

Tours Corp offers towing services, auto routing, travel brochures, and other travel services for one annual fee. This is an example of ________. A) revenue tracing B) revenue allocation C) a bundled product D) a business conglomerate

a bundled product

Which of the following departments is a support department for a boat manufacturing company?

accounting

To discourage unnecessary use of a support department, management might ________. A) allocate user department costs based upon support department usage B) allocate support department costs based upon user department usage C) allocate a fixed amount of support department costs to each and every department D) allocate a fixed amount of user department costs to each and every department

allocate support department costs based upon user department usage

The direct allocation method ________. A) allocates support-department costs to operating departments by fully recognizing the mutual services provided among all support departments B) allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments C) allocates each support-department's costs to operating departments only D) requires managers to rank the support departments in the order that the step-down allocation is to proceed

allocates each support-department's costs to operating departments only

When using the dual-rate method, the fixed cost allocation is based on ________.

budgeted usage

A cost of operating a facility, department, activity area, or like cost object that is shared by two or more users is called a ________. A) combined cost B) distinct cost C) fixed cost D) common cost

common cost

An example of an allowable cost considered by U.S government contract is ________. A) costs of economy-class airfares B) costs of lobbying activities C) costs of alcoholic beverages D) costs of vacation for executives

costs of economy-class airfares

The cost-allocation method that allocates each support-department's costs to operating departments only is the ________. A) direct method B) single-rate cost allocation method C) step-down method D) reciprocal method

direct method

The direct allocation method ________. A) does not allocate support department costs to other support departments B) uses information about reciprocal services provided among support departments and can therefore lead to inaccurate estimates of the cost of operating departments C) allocates complete reciprocated costs D) offers key input for outsourcing decisions

does not allocate support department costs to other support departments

The step-down method ________. A) partially recognizes the services provided among support departments B) does not recognize the total services that support departments provide to each other C) is conceptually the most precise method D) results in allocating only the support costs used by operating departments

does not recognize the total services that support departments provide to each other

Under the stand-alone method of allocating common costs ________. A) the individual users of a cost object are ranked in the order of users least responsible for the common cost and then uses this ranking to allocate cost among those 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) the individual users of a cost object are ranked in the order of users most responsible for the common cost and then uses this ranking to allocate cost among those users

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

The biggest advantage of using practical capacity to allocate costs is that it ________. A) focuses the user's division with the costs of overused capacity B) never causes over or under-allocated overhead C) burdens the user divisions with the costs of unused capacity D) focuses management's attention on unused capacity

focuses management's attention on unused capacity

The reciprocal allocation method ________. A) is the most widely used because of its simplicity B) requires the ranking of support departments in the order that the allocation is to proceed C) highlights the complete reciprocated costs of support departments and how these costs differ from budgeted or actual costs of the departments D) allocates support-department costs to other support departments and to operating departments in a sequential manner that partially recognizes the mutual services provided among all support departments

highlights the complete reciprocated costs of support departments and how these costs differ from budgeted or actual costs of the departments

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

include the support department's costs plus any interdepartmental cost allocations

Businesses offer bundled products to ________. A) increase customer exposure B) avoid the problems of cost allocation C) avoid the problems of revenue allocation D) decrease taxes

increase customer exposure

the method that ranks individual products in a bundle for revenue allocation is the ________. A) stand-alone revenue-allocation method B) incremental revenue-allocation method C) unit-cost weighting method D) physical-unit weighting method

incremental revenue-allocation method

The advantage of using practical capacity to allocate costs ________. A) is that it allows a downward supply 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) is that it results in departments bearing a lower percentage of fixed costs

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

Which of the following is an operating department? A) machining B) accounting C) materials management D) production control

machining

The single-rate cost-allocation method may base the denominator choice on ________. A) master-budget capacity utilization B) fixed cost utilization C) variable cost utilization D) direct-cost utilization

master-budget capacity utilization

In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because ________. A) the government taxes the defense companies at a higher level than that of other public sector companies B) there is an implicit agreement among defense contractors to "share contracts" C) all defense contractors have essentially the same cost structure D) no contractor is willing to assume all the risk of receiving a fixed price for the contract

no contractor is willing to assume all the risk of receiving a fixed price for the contract

Cost-based prices ________. A) are one 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 government contracts

pass the majority of risk to the buyer

Which of the following is included in an explicit written contract for cost allocation? A) resource allocation for the budgeted costs B) the rate at which the company should be taxed upon C) permissible cost-allocation bases D) profit that the company must earn

permissible cost-allocation bases

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

practical capacity-based allocations are used

Which of the following is an example of a revenue object? A) suppliers B) products C) labor D) duration to complete a given task

products

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

reciprocal method

The best method to determining weights for the stand-alone revenue-allocation method is ________. A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products B) unit cost revenue-allocation method because it can be used on all occasions C) the direct revenue-allocation method since selling prices or unit costs are difficult to calculate for individual products D) physical-units revenue-allocation method because the physical units explicitly value the prices customers are willing to pay for the individual products

selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products

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

single-rate cost allocation method

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) selling prices B) unit costs C) physical units D) stand-alone product revenues

stand-alone product revenues

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

step-down method

Which of the following is one of the methods of allocating support department costs to operating departments? A) dual-cost allocation method B) incremental method C) step-down method D) single-rate cost allocation method

step-down method

Special cost-allocation problems arise when ________. A) support department costs exceed budgetary estimates B) practical capacity is used as the allocation base C) support departments provide reciprocal services to each other and operating departments D) the same cost-allocation base is used among various support departments

support departments provide reciprocal services to each other and operating departments

When budgeted cost-allocations rates are used ________. A) user departments are not informed about the charges until the end of the period B) the manager of the supplier division bears the risk of unfavorable cost variances C) user divisions pay for costs that exceed budgeted amounts D) user divisions pay for inefficiencies of the supplier department

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

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) the first-incremental user bears a higher proportion of the cost in comparison with the primary user D) the primary user bears the maximum of the total cost

the primary user bears the maximum of the total cost

Contract disputes regarding cost allocation can be reduced by defining ________. A) the material items allowed for production B) the terms used, such as what constitutes direct labor C) permissible tax deductions D) minimum profit level the company should earn

the terms used, such as what constitutes direct labor

When actual cost-allocations rates are used ________.

user divisions are unaware of the allocated amounts until the end of the budget period

The stand-alone revenue-allocation method ________. A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products B) ranks individual products in a bundle according to criteria determined by management C) ranks individual products in a bundle according to costs allocated to the products D) survey customers about the importance of each of the individual products in their purchase decision

uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products

Approaches used to rank products for revenue allocation can include ________. A) surveying suppliers on the importance of each product B) using recent data on stand-alone sales performance C) having sales agents use their knowledge and intuition D) surveying middlemen on the importance of each product

using recent data on stand-alone sales performance

The dual-rate cost-allocation method classifies costs in each cost pool into a ________. A) budgeted-cost pool and an actual-cost pool B) variable-cost pool and a fixed-cost pool C) direct-cost pool and an indirect-cost pool D) direct-cost pool and a reciprocal-cost pool

variable-cost pool and a fixed-cost pool

Under the dual-rate cost-allocation method, when fixed costs 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 and for the long-run C) the costs of unused capacity are highlighted D) variations in one division's usage affect another division's allocation

variations in one division's usage affect another division's allocation

Managers of supplier departments ________. A) view the budgeted rates positively if unfavorable cost variances occur due to price decreases outside of their control B) view the budgeted rates negatively if favorable cost variances occur due to price decreases outside of their control C) view the budgeted rates negatively if unfavorable cost variances occur due to price increases outside of their control D) view the budgeted rates negatively if unfavorable cost variances occur due to price decreases outside of their control

view the budgeted rates negatively if unfavorable cost variances occur due to price increases outside of their control