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Exam 21: Cost Allocation and Performance Measurement

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Question 41

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A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead) : With traditional two-stage allocation of overhead costs, using direct labor hours as the allocation base, the setup cost portion of overhead that is allocated to each unit of product for Mica and Plax, respectively is:

A) $80; $.80.
B) $3.20; $3.20.
C) $4.00; $4.00.
D) $160.00; $12,800.00.
E) $200.00; $16,000.00.

F) B) and E)
G) B) and D)

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Question 42

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

A) True
B) False

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Question 43

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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?

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

A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:

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.

The allocation bases for assigning indirect costs include:

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Which department has the greatest departmental contribution to overhead and what is the amount contributed?

A system of assigning costs to departments and products on the basis of a variety of activities instead of only one allocation base is called:

What is a profit center?

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.

Investment center managers are usually evaluated using performance measures

Eleanor Reed, the manager of the Marinette Plant of the Wisconsin Company is responsible for all of the plant's costs except her own salary. There are two operating departments within the plant, Departments A and B. Each department has its own manager. There is also a maintenance department that provides services equally to the two operating departments. The following information is available. Department managers are responsible for the wages and supplies in their department. They are not responsible for their own salary. Building rent, utilities, and maintenance are allocated to each department based on square footage. Complete the responsibility accounting performance reports below that list costs controllable by the manager of Department A, the manager of Department B, and the manager of the Marinette plant.

Billabong Resources provides the following data to enable you to calculate overhead rates: Machining Department Overhead is $16,000, which is to be allocated on estimated machine hours of 25,000. The rate per Machine Hour would be _________________. If Machining cost is to be allocated to three jobs which consumed A = 3,000 hours, B = 6,000 hours, and C = 1,000 hours respectively; then Job A should be charged $__________________; Job B should be charged $___________________; and Job C $_______________.

A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common.

List the steps required to prepare a departmental income statement.

A single basis for allocating service department costs to production departments should be used for all service departments.

A cost center does not directly generate revenues.

The following is taken from Ames Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept.1 using activity-based costing.

___________________ are costs incurred to produce or purchase two or more products at the same time.