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Exam 3: A Costing Framework and Cost Allocation

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Question 1

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The reason for allocating indirect costs is:

A) for pricing decisions
B) to comply with external reporting requirements
C) to remind departmental managers of the full impact of their decisions
D) all of the above

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Question 2

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When discussing costing the indirect cost rate is:

A) the rate used to assign indirect costs to the cost object
B) the total costs incurred for a cost object
C) the input or activity that causes changes in total costs for a cost object
D) the method used to allocate the costs of each support department to the operating departments

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Question 3

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The allocation order of support department costs does not matter if the reciprocal method of allocation is used

As the number of cost pool increases the accuracy of the cost information decreases.

Which of these departments would not be considered a support department for a manufacturer of bathroom fittings?

The allocation method for support department costs that can manipulate the costs allocated by changing the order of the support department cost allocation is:

Which statement concerning the step-down method of allocating support department costs is not correct?

The allocation method for support department costs that allocates fixed and variable costs separately is:

The distinction between direct costs and indirect costs depends on their traceability to

Support department cost allocation is necessary for the preparation of externally issued financial statements.

Direct costs are costs that can be directly linked to a cost object by physical tracking.

Sales Smart allocates indirect labour costs to its two departments, F and M using number of employees per department as the cost driver. For the current year the number of employees in department F are estimated to be 80 and for M department 45 and total indirect labour costs for the departments are budgeted at $2,400,000. The amount allocated to the departments are:

The cost driver that is a volume based cost driver is:

The allocation of indirect costs to cost objects is likely to be inaccurate if the allocation base used is not a cost driver.

Sales Smart allocates advertising expenses to its two departments, F and M, using sales as the cost driver. For the current year the sales for department F are estimated to be $900,000 and for department M $600,000 and total advertising expenses are budgeted at $55,000. The indirect cost rate is:

Which of these cost drivers is not subjective?

Trucker industries provides the following information about departmental consumption of allocation bases for its 3 support and 2 operating departments. For the step-down method, what proportion of the Cafeteria's costs will be allocated to the Maintenance Department if the allocation order is Personnel, Cafeteria and Maintenance?

Which of these statements concerning the determination of the full cost of a cost object is not true?

If the cost object is the payroll department in a large manufacturing firm which of these would be a direct cost?

Support department cost allocations should never be made when the information is to be used to evaluate the performance of an operating department manager.