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Exam 12: Cost Accumulation, Tracing, and Allocation

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Question 1

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

A) $36,000
B) $111,000
C) $68,000
D) None of these answers is correct.

E) None of the above
F) All of the above

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Question 2

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Indicate whether each of the following statements is true or false. 1. Volume measures include number of labor hours, quantity of direct materials used, and number of units sold. 2. A variable overhead cost should be allocated to cost objects using a volume measure as the allocation base. 3. A causal relationship exists between a fixed overhead cost and the volume of production. 4. The allocation base used by a manufacturer to allocate overhead costs may affect the apparent profitability of the various products the company makes. 5. Fixed indirect costs are often allocated using arbitrary allocation bases.

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1. True
2....

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Question 3

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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?

Cost objects may be:

Southeast Manufacturing Company has identified the following cost objects: Cost Object 1: The cost of operating the finishing department Cost Object 2: The cost of a particular product made in June Cost Object 3: The cost of operating the factory With respect to these cost objects, the cost of the salary of the supervisor of the finishing department is directly traceable to cost objects:

Which of the following is an appropriate cost driver for allocating indirect costs to a human resources department in a service company?

Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store?

The process of dividing a total cost into parts and assigning it to cost objects is known as:

Overhead costs include:

Select the incorrect statement from the following.

Assume that factory depreciation for the year is $240,000. What problem could result from dividing that amount by 12 and assigning $20,000 in depreciation to the products made each month?

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? $\begin{array}{lll}&\text { Object } 1&\text { Object } 2&\text { Object } 3\\ A.&\text { Direct } & \text { Direct } & \text { Direct } \\B.&\text { Direct } & \text { Direct } & \text { Indirect } \\C.&\text { Indirect } & \text { Indirect } & \text { Indirect } \\D. &\text { Indirect } & \text { Indirect } & \text { Direct }\end{array}$

The following are Acme's production costs for the quarter ended September 30^th: $\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 150,000 \\\hline \text { Direct labor } & \$ 175,000 \\\hline \text { Factory overhead } & \$ 225,000 \\\hline\end{array}$ What amount of costs should be traced to specific products in the process?

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

Which of the following statements is true?

Costs that can be traced to a cost object in a cost-effective way are called direct costs.

Humphries Construction Company builds warehouses that range in size from 12,000 to 100,000 square feet. Which of the following would not be a rational base for allocating overhead costs to the warehouses?

Indicate whether each of the following statements is true or false. 1. Indirect costs are traced to cost objects. 2. Cost drivers are used to allocate indirect costs to cost objects. 3. An allocation rate is calculated by dividing the allocation base by the total cost to be allocated. 4. A cost driver must be identified for each cost pool that is to be allocated. 5. Depreciation on a building might be allocated to the departments sharing the building based on the number of square feet occupied by each department.

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

Select the correct statement from the following.