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Exam 21: Cost Allocation and Performance Measurement

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Question 41

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How do companies decide what allocation bases to use to allocate indirect costs to departments?

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While it is not always possible to avoid...

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Question 42

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Activity based costing can be applied to:

A) Manufacturing activities only.
B) Service activities only.
C) Merchandising activities only.
D) Any company in any industry.
E) Government only.

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

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Question 43

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Belgrade Lakes Properties is developing a golf course subdivision that includes 225 home lots; 100 lots are golf course lots and will sell for $95,000 each; 125 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated to the street frontage lots using value basis.

Able Company has two operating (production) departments: Assembly and Fabricating. Assembly has 150 employees and occupies 44,000 square feet; Fabricating has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the current period are as follows: Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is:

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.

What is a cost center?

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

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

Outdoor Sports, Inc., produces two types of skis, downhill skis and cross country skis. Product and production information about the two items is shown below: Required: 1. If Outdoor Sports uses the traditional two-stage method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two types of skis? 2. If Outdoor Sports uses activity based costing, what is the total amount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.

Dresden, Inc. has four departments. Information about these departments follows is listed below. If allocated maintenance cost is based on floor space occupied by each, compute the amount of maintenance cost allocated to the Cutting Department.

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 dairy allocates the cost of unprocessed milk to the production of milk, cream, butter and cheese. For the current period, unprocessed milk was purchased for $240,000, and the following quantities of product and sales revenues were produced. How much of the $240,000 cost should be allocated to milk?

Define an investment center. How are investment centers evaluated?

A college uses advisors who work with all students in all divisions of the college. The most useful allocation basis for the salaries of these employees would likely be

Precision Brackets, Co. is considering switching from traditional allocation of overhead based on direct labor hours to an activity-based costing system. The manager has accumulated the following information on engineering changes for two of the company's major products: Compute the cost per unit using: (1) The traditional two-stage allocation of the costs of engineering changes based on direct labor hours. (2) The activity-based cost allocation of the costs of engineering changes.

The first three steps in preparing a departmental income statement are: (1) accumulate __________________ of the department, (2) allocate __________________ to the department, and (3) allocate _____________________ to the operating departments.

The difference between a profit center and an investment center is

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

A company pays $15,000 per period to rent a small building that has 10,000 square feet of space. This cost is allocated to the company's three departments on the basis of the amount and value of the space occupied by each. Department One occupies 2,000 square feet of ground-floor space, Department Two occupies 3,000 square feet of ground-floor space, and Department Three occupies 5,000 square feet of second-floor space. If rents for comparable floor space in the neighborhood average $2.20 per square foot for ground-floor space and $1.10 per square foot for second-floor space and the rent is allocated based on the total value of the space, Department One should be charged rent expense for the period of: