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Exam 21: Cost Allocation and Performance Measurement

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Question 81

Multiple Choice

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A responsibility accounting performance report reports:

A) Only actual costs.
B) Only budgeted costs.
C) Both actual costs and budgeted costs.
D) Only direct costs.
E) Only indirect costs.

F) A) and D)
G) A) and E)

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Question 82

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Activity-based costing assigns costs first to activity pools, and then costs from activity cost pools are assigned to the cost objects benefiting from the activities.

A) True
B) False

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Question 83

Multiple Choice

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A unit of a business that not only incurs costs, but also generates revenues, is called a:

A company produces two products, X and Y, from a single raw material called ZZ. ZZ is purchased in 55-gallon drums, and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y. X sells for $10.00 per gallon and Y sells for $30.00 per gallon. During the current period, the company used 400 drums of ZZ to produce X and Y. The cost of ZZ was $90 per drum. Required: (1) If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced, how much of the total cost of the 400 drums should be charged to each product? (2) If the cost of ZZ is allocated to the X and Y products in proportion to their market values, how much of the total cost of the 400 drums should be charged to each product? (3) Which basis of allocating the cost is most likely to be used by the company? Check one and briefly explain. _________ The relative number of gallons of each product produced. _________ The relative market values of each product at the point of separation.

A basis for allocating the cost of a resource to an activity cost pool or allocating the cost of an activity cost pool to a cost object is a(n) :

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:

A department that is responsible for maximizing revenues is known as a profit center.

A report that accumulates the actual costs that a manager is responsible for and their budgeted amounts is a:

Wilson Trade School allocates administrative costs to its respective departments based on the number of students enrolled, while maintenance and utilities are allocated per square feet of the classrooms. Based on the information below, what is the total amount allocated to the Automotive Department (rounded to the nearest dollar) if administrative costs for the school were $50,000, maintenance fees were $12,000, and utilities were $6,000?

Match the appropriate definition with the following terms:

Direct costs require allocation across departments.

A useful measure used to evaluate the performance of an investment center is investment center residual income.

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Maintenance department expense to be allocated to Fabrication.

A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.

Jamesway Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year: The White Division occupies 20,000 square feet in the plant. The Grey Division occupies 30,000 square feet. Rent is an indirect expense and is allocated based on square footage. Rent expense for the year was $50,000. Compute departmental income for the White and Grey Divisions, respectively.

Expenses that are not easily associated with a specific department, and which are incurred for the benefit of more than one department, are:

Evaluation of the performance of a department involves only financial measures.

A profit center:

Indirect expenses should be allocated to departments based upon the benefits received by each department.

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product A for this period's $660 of joint costs if the value basis is used.