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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 81

Multiple Choice

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Cobalt Company management has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of operating the factory Cost Object 3: The cost of a particular product made in June With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified? $\begin{array}{llll} &\text { Object } 1&\text { Object } 2&\text { Object } 3\end{array}$ A. $\begin{array}{llll} & \text { Direct } & \text { Direct } && \text { Direct } \\\end{array}$ B. $\begin{array}{llll}& \text { Direct } & \text { Direct } && \text { Indirect } \\\end{array}$ C. $\begin{array}{llll}& \text { Indirect } & \text { Indirect } & \text { Indirect } \\\end{array}$ D. $\begin{array}{llll}&\text { Indireat } & \text { Indireat } & \text {Direct }\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

E) None of the above
F) A) and B)

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Question 82

Multiple Choice

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Select the correct statement from the following.

A) The allocation base determines whether a cost is classified as direct or indirect.
B) The same cost cannot be classified as both direct and indirect.
C) Relevant costs can include direct and indirect costs.
D) Direct costs always display a variable behavior pattern.

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

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Question 83

Multiple Choice

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Custom Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. The company expects to make 2,000 comforters during the current year. With respect to the comforters, how would the supervisory salaries be classified?

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

Craig Manufacturing Company operates its three production departments within a single facility. Each department produces its own products and maintains its own production equipment. Although they share a common facility, each department is overseen by a separate supervisor. Which one of the following costs is a direct cost of each department?

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

Because Fenwick Company has significant swings in its monthly production, the best way to allocate its plant manager's $58,000 annual salary is to allocate 1/12^th of the cost each month.

Which of the following statements is false?

Sheddon Industries produces two products. The products' identified costs are as follows: $\begin{array} { l c c } & \text { Product A } & \text { Product B } \\\text { Direct materials } & \$ 23,000 & \$ 19,000 \\\text { Direct labor } & \$ 11,000 & 27,000\end{array}$ The company's overhead costs of $57,000 are allocated based on direct labor cost. Assume 7,000 units of product A and 8,000 units of Product B are produced. What is the cost per unit for product B? (Do not round intermediate calculations.)

Wayne Company wishes to allocate overhead costs in a heavily automated production department. Direct labor hours would be a less appropriate cost driver than machine hours.

Which of the following statements is incorrect?

Select the false statement from the following.

Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of the year, Danforth estimated that total annual fixed overhead costs would amount to $60,000. Further, Danforth estimated that the annual volume of production would be 1,000 units of product. Based on these estimates, Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year. As predicted, the actual volume of production amounted to 1,000 units of product. However, actual fixed overhead costs amounted to $56,000. Based on this information alone:

Cobalt Company management has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of operating the factory Cost Object 3: The cost of a particular product made in June With respect to these cost objectives, how would rent paid by the finishing department for storage space be classified? $\begin{array}{ccc}\text { Object } 1&\text { Object }2& \text { Object }3 \\\end{array}$ A. $\begin{array}{ccc} \text {Direct } & & \text { Direct }& \text { Direct } \\\end{array}$ B. $\begin{array}{ccc} \text {Direct } && \text { Indirect }& \text {Indirect } \\\end{array}$ C. $\begin{array}{ccc} \text { Indirect } & \text {Indirect }& \text { Indirect } \\\end{array}$ D. $\begin{array}{ccc} \text {Indirect } & \text { Indirect }& \text {Indirect } \\\end{array}$

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?

Which formula best represents the first step used to allocate an indirect cost to a cost object?

Indirect costs should not be pooled unless they share a common cost driver.

During the current year, Kemp Construction Company built 23 custom homes that ranged in size from 2,500 square feet to 8,000 square feet. One home was completed each month during January, February, and March. Three homes were completed during April and May. Two homes were completed during each of the months from June through December. Based upon this information, the most appropriate allocation base (i.e., cost driver) for the assignment of indirect overhead costs to each house would be the:

All of the following are examples of indirect costs that can be classified as being variable costs except:

Blanton Company wishes to allocate rent expense of $24,000 to its three operating departments, A, B, and C. Assuming the three departments occupy 10,000, 20,000, and 30,000 square feet, respectively, the cost allocation rate for Department C is $0.80 per square foot.