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Exam 4: Cost Accumulation,tracing,and Allocation

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Question 1

True/False

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The goal in allocating a cost to cost objects is to achieve a rational allocation.

A) True
B) False

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Question 2

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The split-off point:

A) is the point at which production of joint products begins.
B) is the point at which joint products become unidentifiable.
C) refers to the point where title to goods sold passes from the seller to the buyer.
D) is the point at which joint products separated from each other.

E) C) and D)
F) None of the above

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Question 3

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Alvarez Company makes three joint products,products A,B,and C.For each batch,the materials cost is $16,000,direct labor cost is $4,000,and manufacturing overhead is $10,000.From each batch,the company makes 2,000 pounds of A,1,200 pounds of B,and 800 pounds of C. Required: 1)What are the total joint costs for each batch of the products? 2)Allocate the joint costs to each of the three products. 3)Determine the cost per pound for product A.

The method used to allocate service department costs can cause overstatement of costs for some cost objects and understatement for others.

Great Outdoors Company makes two types of camping tents.Making a standard camping tent requires 4 hours of labor while making a deluxe camping tent requires 10 hours of labor.During the most recent accounting period the company made 2,000 standard camping tents and 500 deluxe camping tents.Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours.Based on this information:

Biden Department Store has four departments: men's,women's,children's,and electronics.The following information is provided: $\begin{array}{llcc}&\text { Men's } & \text { Women's } & \text { Children's } & \text { Electronics } \\\text { Floor space}&10,00 \text { csq. ft. } & 20,000 \text { sq. ft. } & 8,000 \text { sq. ft. } & 2,000 \mathrm{sq} . \mathrm{ft} . \\\text { Sales}&\$35,00 0 & \$ 75,000 & \$ 20,000 & \$ 12,000\end{array}$ The company's accountant needs to allocate the store's annual rent of $160,000. Required: 1)Compute the allocation rate that should be used to allocate the rent cost to the four departments. 2)Compute the amount of rent that should be allocated to each of the four departments. 3)Currently,the managers are paid a bonus based on sales.As you can see from the above table,the women's department manager will receive the largest bonus.Do you believe this bonus plan is fair to all four department managers? Why or why not?

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

The step method of allocating service department costs allocates those costs to operating departments only.

An allocation base has a cause-and-effect relationship with a cost object.

Indicate whether each of the following statements is true or false.

What are cost objects? List examples of cost objects.

Volume measures serve as good cost drivers for allocating variable overhead costs because of the causal relationship that exists between those drivers and variable costs.

Which of the following regarding direct costs is a correct statement?

Cost objects may be:

Pets 'n Pals is attempting to determine the cost of operating a particular store.Which of the following costs would be classified as an indirect cost?

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

Using the direct method of allocating service department costs,the costs are allocated to:

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

A chair manufacturer makes custom chairs using hand tools,wood,glue,and varnish.Which of the following statements is true?

Cost allocation involves: