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Exam 4: Cost Accumulation,Tracing,and Allocation

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Question 21

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In a manufacturing company,service department costs are:

A) reported as selling and administrative expenses.
B) allocated to the products made by the company.
C) treated as direct costs.
D) expensed when incurred.

E) All of the above
F) A) and B)

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Question 22

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Sheddon Industries produces two products.The products' identified costs are as follows: $\begin{array}{|l|c|l|}\hline & \text { Product A } & \text { Product B } \\\hline \text { Direct matenals } & \$ 20,000 & \$ 15,000 \\\hline \text { Direct labor } & 12,000 & 24,000 \\\hline\end{array}$ The company's overhead costs of $108,000 are allocated based on direct labor cost.Assume 4,000 units of product A and 5,000 units of Product B are produced.What is the cost per unit for product B? (Do not round your intermediate calculations. )

A) $7.80
B) $22.20
C) $16.80
D) None of the answers are correct.

E) B) and C)
F) A) and D)

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Question 23

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The accuracy of managerial accounting information usually is more important than timeliness.

Each indirect cost should be allocated to products individually to provide the most useful cost information.

A company may use several different cost drivers to allocate its indirect costs.

A company's total profit can be affected by the method used to allocate joint costs.

Burke Company has 160 employees,88 of whom are in Department 1 and 72 in Department 2.The company expects to incur $166,000 of office supplies costs during the current year.How much of this cost should be allocated to Department 1?

Sturbridge Company manufactures fine furniture and grandfather clocks.Sturbridge has an excellent reputation,and each grandfather clock sells for several thousand dollars.Which of the following should not be treated as direct costs,assuming the cost object is individual clocks?

For financial reporting,joint costs are assigned to the product with the highest sales value.

To avoid the appearance that a joint product is incurring losses,a company might allocate joint costs based on relative sales value of each product at the split-off point.

It is possible that the same cost might be direct with respect to one cost object but indirect with respect to another cost object.

The Western and Pacific Railroad has two divisions,the Western Division and the Pacific Division.The company recently invested $8,000,000 to maintain its railroad track.Pertinent data for the two divisions are as follows: Total Miles Traveled: $\begin{array}{|l|l|}\hline \text { Western Division } & 800,000 \text { miles } \\\hline \text { Pacific Division } & 1,200,000 \text { miles } \\\hline\end{array}$ The amount of track improvement cost that should be allocated to the Western Division is: (Do not round your intermediate calculations. )

Why is a company's selection of cost allocation methods important to individual managers?

The first step in cost accumulation is to identify cost objects.

At the beginning of the year,Rangle Company expected to incur $54,000 of overhead costs in producing 6,000 units of product.The direct material cost is $20 per unit of product.Direct labor cost is $30 per unit.During January,600 units were produced.The total cost of the units made in January was:

Alleghany Community College operates four departments.The square footage used by each department is shown below. $\begin{array}{|l|r|}\hline {\text { Department }} & \text { Square Footage } \\\hline \text { Accounting } & 3,000 \\\hline \text { Marketing } & 4,000 \\\hline \text { Technology } & 6,000 \\\hline \text { Sciences } & 3,00 0 \\\hline {\text { Total }} & 16,000 \\\hline\end{array}$ Alleghany's annual building rental cost is $320,000 What amount of rent expense that should be allocated to the Sciences Department?

Marsden Company has three departments occupying the following amount of floor space: $\begin{array}{|l|l|}\hline \text { Department 1 } & 15,000 \mathrm{sq.ft} \\\hline \text { Department 2 } & 10,000 \mathrm{sq.ft} \\\hline \text { Department 3 } & 25,000 \mathrm{sq.ft} \\\hline\end{array}$ How much store rent should be allocated to Department 3 if total rent is equal to $200,000? (Do not round your intermediate calculations. )

Anchor Calendar Company manufactures wall and desktop calendars for business use.The company expects production of 20,000 units this year.Various costs and items associated with calendar production are described below: $\begin{array} { | l | l | l | l | l | } \hline \text { Item } & \text { Direct } & \text { Indirect } & \text { Fised } & \text { Variable } \\\hline \text { Purchase cost of paper } & & & & \\\hline \text { Assembly labor costs } & & & & \\\hline \text { Supervisory labor costs } & & & & \\\hline \begin{array} { l } \text { Depreciation on paper cutting } \\\text { machines }\end{array} & & & & \\\hline \text { Depreciation on factory building } & & & & \\\hline \begin{array} { l } \text { Maintenance on machines } \\\text { (performed between batches of } \\\text { products) }\end{array} & & & & \\\hline \begin{array} { l } \text { Materials used in small amount, } \\\text { such as glue }\end{array} & & & & \\\hline \text { Factory rental costs } & & & & \\\hline\end{array}$ Required: Assume that management is interested in determining the average cost per calendar.For each item in the table,place a check mark or X in every column that applies.When labeling costs as fixed or variable,select your response on the basis of whether the total cost of that item will change when changes occur in volume of calendars produced.

The terms "cost tracing" and "cost allocation" may be used interchangeably because they mean the same thing.

How can the use of a predetermined overhead rate prevent timing problems in determining the costs of products?