Chapter 5

Management Accounting, Cdn.
6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 5 Cost Allocation and Activity-Based Costing Systems
1) The goal of a cost accounting system is to measure the cost of developing, producing, selling and
distributing particular products or services.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
2) The direct method of allocating service department costs partially recognizes services that service
departments provide to each other.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 169
Objective: 5
3) The reciprocal method of allocating service department costs fully recognizes services that service
departments provide to each other.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 169
Objective: 5
4) Direct-labour hours are not a very good measure of the cause of costs in modern, highly automated
departments.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
5) Producing departments are responsible for producing the products sold to customers.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
6) Service departments are responsible for providing services directly to customers.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
7) Accounting is an example of a producing department.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
8) Maintenance is an example of a service department.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
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9) The company cafeteria is an example of a producing department.

Answer: FALSE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
10) Packaging is an example of a service department.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
11) One of the main objectives of cost allocation is to motivate managers.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
12) One of the main objectives of cost allocation is to value inventory.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 162
Objective: 1
13) Actual costs should always be used when allocating service department costs.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 164
Objective: 2
14) Service department costs should be allocated directly to units of product.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 164
Objective: 2
15) If the allocation is for performance evaluation, variable service department costs should be allocated
based on the actual rate and actual usage.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 164
Objective: 2
16) The goal of activity-based costing is to trace costs to products or services instead of arbitrarily
allocating them.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 175
Objective: 8
17) The cost pool should be a quantifiable measure of what causes costs.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 201
Objective: 5
2
18) In activity-based costing, costs are classified as either direct or indirect.

Answer: FALSE
Diff: 1
Type: TF
Page Ref: 169
Objective: 5
19) Activity-based accounting systems classify more costs as direct, thus simplifying and reducing the
cost of a traditional system.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 210
20) The goal of a just-in-time production system is to have zero inventory.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 214
Objective: 7
21) A group of individual costs that is allocated to cost objectives using a single cost driver is known as a
A) cost allocation base.
B) cost pool.
C) joint cost.
D) by-product.
Answer: B
Diff: 1
Type: MC
Page Ref: 162
Objective: 1
22) Costs are allocated for all the following purposes EXCEPT to
A) predict the economic effects of planning and control decisions.
B) obtain desired motivation.
C) determine the sales volume.
D) compute income and asset valuation.
Answer: C
Diff: 1
Type: MC
Page Ref: 162
Objective: 1
23) Which of the following is NOT a type of cost allocation?
A) Allocation of costs to the appropriate organizational unit
B) Reallocation of costs from service departments to production departments
C) Allocation of costs of a particular organizational unit to products or services
D) Reallocation of costs from production departments to service departments
Answer: D
Diff: 1
Type: MC
Page Ref: 161
Objective: 1
3
24) The preferred guidelines for allocating service department costs include all of the following EXCEPT
A) identify the direct and indirect costs.
B) evaluate performance using budgets for each service department.
C) establish part or all of the details regarding cost allocation in advance of rendering the service.
D) allocate variable- and fixed-cost pools separately.
Answer: A
Diff: 1
Type: MC
Page Ref: 164
Objective: 1
Boone Manufacturing has two production departments, Mixing and Finishing, served by one
maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000,
and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Mixing
Finishing
Long-run capacity available*

Budgeted*
12,000
12,000
8,000
7,000
Actual*
10,000
6,000
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
*in labour hours
25) The amount of fixed maintenance costs allocated to the Mixing Department should be
A) $13,333.
B) $8,000.
C) $12,000.
D) $9,333.
Answer: C
Diff: 2
Type: MC
Page Ref: 191
Objective: 1
26) The amount of fixed maintenance costs allocated to the Finishing Department should be
A) $12,000.
B) $ 8,000.
C) $ 9,333.
D) $ 7,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
27) The amount of variable maintenance costs allocated to the Mixing Department should be
A) $30,000.
B) $36,000.
C) $24,000.
D) $31,250.
Answer: A
4
Diff: 2
Type: MC
Objective: 5
Page Ref: 169
28) The amount of variable maintenance costs allocated to the Finishing Department should be
A) $21,000.
B) $24,000.
C) $18,750.
D) $18,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
Stumbo Company has two production departments, Cutting and Assembling, served by one maintenance
department. Budgeted fixed costs for the maintenance department for 20X3 were $60,000, and the
variable cost per labour hour was $2.00. Other relevant data for 20X3 are as follows:
Cutting
Assembling
Long-run capacity available*

Budgeted*
48,000
32,000
32,000
28,000
Actual*
40,000
24,000
Actual maintenance department costs for 20X3 were $64,000 fixed and $120,000 variable.
*in labour hours
29) The amount of fixed maintenance costs allocated to the Cutting Department should be
A) $40,000.
B) $24,000.
C) $36,000.
D) $28,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
30) The amount of fixed maintenance costs allocated to the Assembling Department should be
A) $36,000.
B) $24,000.
C) $28,000.
D) $22,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
31) The amount of variable maintenance costs allocated to the Cutting Department should be
A) $80,000.
B) $96,000.
C) $64,000.
5
D) $83,333.
Answer: A
Diff: 2
Type: MC
Objective: 5
Page Ref: 169
32) The amount of variable maintenance costs allocated to the Assembling Department should be
A) $56,000.
B) $64,000.
C) $50,000.
D) $48,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
33) To allocate central costs, a company could use all of the following cost drivers EXCEPT the
A) revenue of each division.
B) cost of goods sold by each division.
C) total assets of each division.
D) total period costs of each division.
Answer: D
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
Stohr Company has two departments, New and Old. Central costs are allocated to the two departments
in various ways. Relevant information is presented below:
Square footage
Number of employees
Sales
New
4,000
560
$800,000
Old
12,000
240
$4,000,000
34) If total advertising expense is $240,000 and it is allocated on the basis of sales, the amount allocated to
the New Department should be
A) $40,000.
B) $60,000.
C) $168,000.
D) $200,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
35) If total advertising expense is $120,000 and it is allocated on the basis of sales, the amount allocated to
the Old Department should be
A) $90,000.
B) $36,000.
C) $100,000.
D) $ 20,000.
6
Answer: C
Diff: 2
Type: MC
Objective: 5
Page Ref: 169
7
36) If total payroll processing costs are $64,000 and they are allocated on the basis of number of
employees, the amount allocated to the New Department should be
A) $44,800.
B) $16,000.
C) $10,667.
D) $19,200.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
37) If total payroll processing costs are $40,000 and they are allocated on the basis of number of
employees, the amount allocated to the Old Department should be
A) $28,000.
B) $12,000.
C) $30,000.
D) $33,333.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
38) If total rent expense is $80,000 and it is allocated on the basis of square footage, the amount allocated
to the New Department should be
A) $13,333.
B) $20,000.
C) $56,000.
D) $60,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
39) If total rent expense is $192,000 and it is allocated on the basis of square footage, the amount allocated
to the Old Department should be
A) $57,600.
B) $160,000.
C) $144,000.
D) $48,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
40) Which of the following departments is NOT a service department?
A) Facilities management
B) Personnel
C) Accounting
D) Finishing
Answer: D
Diff: 1
Type: MC
Page Ref: 161
8
Objective: 1
41) A method for allocating service department costs that ignores other service departments when any
given service department's costs are allocated to the revenue-producing departments is called the
A) direct method.
B) indirect method.
C) step-down method.
D) step-up method.
Answer: A
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
42) In the step-down method, the last service department in the sequence is the one that renders the
A) most service to all other service departments.
B) most service to the least number of other service departments.
C) least service to the least number of other service departments.
D) least service to the most other service departments.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
43) The greatest virtue of the direct method is
A) its simplicity.
B) the lack of understandability by managers.
C) the recognition of reciprocal relationships between service departments.
D) its ability to allocate production department costs to service departments.
Answer: A
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
City Company has two service departments, Maintenance and Personnel, as well as two production
departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while
personnel costs are allocated based on number of employees. The following information has been
gathered for the current year:
Direct dept. costs

Sq. footage
No. of employees
Maintenance
$18,000
800
8
Personnel
$12,000
400
12
Mixing
$15,000
1,600
24
Finishing
$25,000
1,200
32
44) If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation
would be
A) $30,429.
B) $10,286.
C) $5,143.
D) $15,000.
Answer: A
9
Diff: 2
Type: MC
Objective: 5
Page Ref: 169
45) If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation
would be
A) $7,714.
B) $6,858.
C) $39,571.
D) $25,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
46) If the step-down method is used to allocate costs, and the Maintenance Department renders the
greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is
A) $5,143.
B) $6,107.
C) $6,000.
D) $9,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $6,107.
B) $4,500.
C) $8,143.
D) $6,750.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
48) If the step-down method of allocating costs is used, and the Personnel Department renders the
greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing
is
A) $4,500.
B) $8,357.
C) $9,000.
D) $11,143.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
10
greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing
is
A) $6,000.
B) $8,357.
C) $6,750.
D) $8,142.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, then the total cost of the Mixing Department after allocation would be
A) $30,107.
B) $30,642.
C) $30,428.
D) $15,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
51) If the step-down method is used to allocate costs, and the Personnel Department renders the greatest
service, then the total cost of the Finishing Department after allocation would be
A) $25,000.
B) $39,572.
C) $39,892.
D) $39,357.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
11
County Company has two service departments, Maintenance and Personnel, as well as two production
departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while
personnel costs are allocated based on number of employees. The following information has been
gathered for the current year:
Direct dept. costs

Sq. footage
No. of employees
Maintenance
$72,000
3,200
32
Personnel
$48,000
1,600
48
Mixing
$60,000
6,400
96
Finishing
$100,000
4,800
128
52) If the direct method is used to allocate costs, the total cost of the Mixing Department after allocation
would be
A) $121,714.
B) $41,143.
C) $20,571.
D) $60,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
53) If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation
would be
A) $30,857.
B) $27,429.
C) $158,286.
D) $100,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, the total amount of overhead that would be allocated from Personnel to Mixing is
A) $20,572.
B) $24,429.
C) $24,000.
D) $36,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
12
greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $24,429.
B) $18,000.
C) $32,571.
D) $27,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, then the total amount of overhead that would be allocated from Maintenance to Mixing
is
A) $18,000.
B) $33,428.
C) $36,000.
D) $44,571.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, then the total amount of overhead that would be allocated from Maintenance to Finishing
is
A) $24,000.
B) $33,429.
C) $27,000.
D) $32,568.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
greatest service, then the total cost of the Mixing Department after allocation would be
A) $120,429.
B) $122,571.
C) $121,712.
D) $ 60,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
13
59) If the step-down method is used to allocate costs, and the Personnel Department renders the greatest
service, then the total cost of the Finishing Department after allocation would be
A) $100,000.
B) $158,288.
C) $159,571.
D) $157,429.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
60) Which of the following is the least likely alternative to be used to allocate costs?
A) Use a different cost driver for each cost pool.
B) Allocate all costs evenly to all other departments.
C) Allocate some cost pools using cost drivers and leave other cost pools unallocated.
D) Use one cost driver to allocate all department costs.
Answer: B
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
61) Another term for cost application is
A) cost pool.
B) cost driver.
C) cost objective.
D) cost attribution.
Answer: D
Diff: 1
Type: MC
Page Ref: 185
Objective: 1
62) Each of the following is a step in the general approach to allocating costs to final products or services
EXCEPT
A) select one or more cost drivers in each production department.
B) allocate production-related costs to the operating line.
C) apply the total costs allocated to the production department to the output of the department using cost
drivers.
D) identify production costs as either direct or indirect.
Answer: D
Diff: 1
Type: MC
Page Ref: 185
Objective: 1
63) One conventional way of allocating joint costs to products is the
A) relative sales value method.
B) direct method.
C) indirect method.
D) abc method.
Answer: A
Diff: 1
Type: MC
Page Ref: 172
14
64) Which of the following statements regarding by-products is FALSE?

A) A by-product is not individually identifiable until the split-off point.
B) A by-product is the same as a joint product.
C) By-products have relatively insignificant total sales value.
D) Only separable costs are allocated to by-products.
Answer: B
Diff: 1
Type: MC
Page Ref: 172
Upjohn Company manufactures four products from a joint process. Joint costs for the year amounted to
$350,000. The following data are also available:
Product
W
X
Y
Z
Units Produced
44,000
28,000
70,000
58,000
Sales Value at
Split-off
$128,000
$104,000
$142,000
$126,000
65) Assuming the physical-units method of allocating joint costs, the amount of joint costs allocated to
product W would be
A) $120,312.
B) $62,858.
C) $122,500.
D) $77,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
product X would be
A) $94,230.
B) $72,800.
C) $122,500.
D) $49,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
product Y would be
A) $172,536.
B) $99,400.
C) $122,500.
D) $24,648.
Answer: C
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
15
product Z would be
A) $101,500.
B) $89,600.
C) $161,111.
D) $82,858.
Answer: A
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
69) Assuming the relative-sales-value method of allocating joint costs, the amount of joint costs allocated
to product W would be
A) $89,600.
B) $120,312.
C) $77,000.
D) $50,400.
Answer: A
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
Bare Company manufactures four products from a joint process. Joint costs for the year amounted to
$140,000. The following data are also available:
Product
B
A
R
E
Units Produced
4,400
2,800
7,000
5,800
Sales Value at
Split-off
$64,000
$52,000
$71,000
$63,000
to product B would be
A) $35,840.00.
B) $48,124.80.
C) $30,800.00.
D) $20,160.00.
Answer: A
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
16
to product A would be
A) $19,600.
B) $37,692.
C) $29,120.
D) $16,640.
Answer: C
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
to product R would be
A) $49,000.00.
B) $39,760.00.
C) $69,014.40.
D) $22,720.00.
Answer: B
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
to product E would be
A) $40,600.00.
B) $64,444.40.
C) $58,000.00.
D) $35,280.00.
Answer: D
Diff: 2
Type: MC
Page Ref: 173
Objective: 7
74) Activity-based costing is also known as
A) transaction-based costing.
B) motivation-based costing.
C) objective-based costing.
D) variable-based costing.
Answer: A
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
75) Which of the following is NOT likely to be a cost driver?
A) Production orders
B) Material requisitions
C) Cost accountant's labour hours
D) Product inspections
Answer: C
Diff: 1
Type: MC
Page Ref: 175
Objective: 7
17
76) Which of the following is NOT likely to be an activity in an activity-based costing system?
A) Materials handling
B) Inspection
C) Accounting
D) Assembly
Answer: C
Diff: 1
Type: MC
Page Ref: 175
Objective: 7
Stanley Corp. manufactures two models of its roasting pans, a standard and a deluxe model. Three
activities have been identified as cost drivers and the related costs pooled together to arrive at the
following information:
Product
Standard
Deluxe
Costs per pool
Number of
Setups
12
16
Number of
Components
8
14
Number of
Orders
440
750
$30,000
$76,000
$14,000
77) If activity-based costing is used, then the product setup cost for the standard model would be
A) $12,857.
B) $17,143.
C) $1,071.
D) $1,866.
Answer: C
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
78) If activity-based costing is used, then the total cost of the components used in the deluxe model would
be
A) $3,455.
B) $27,636.
C) $48,364.
D) $76,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
79) If activity-based costing is used, then the total amount of overhead allocated to the standard model
would be
A) $74,330.
B) $120,000.
C) $40,000.
D) $45,670.
Answer: D
18
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
80) If activity-based costing is used, then the total amount of overhead allocated to the deluxe model
would be
A) $45,670.
B) $74,330.
C) $120,000.
D) $ 80,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three
Product
Standard
Deluxe
Costs per pool
Number of
Setups
48
64
Number of
Components
32
56
Number of
Orders
1,760
3,000
$120,000
$304,000
$56,000
81) If activity-based costing is used, then the product setup cost for the standard model would be
A) $51,429.
B) $68,571.
C) $1,071.
D) $120,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
82) If activity-based costing is used, then the total cost of the components used in the deluxe model would
be
A) $3,455.
B) $110,545.
C) $193,455.
D) $304,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
19
83) If activity-based costing is used, then the total amount of overhead allocated to the standard model
would be
A) $297,320.
B) $480,000.
C) $160,000.
D) $182,680.
Answer: D
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
84) If activity-based costing is used, then the total amount of overhead allocated to the deluxe model
would be
A) $182,680.
B) $297,320.
C) $480,000.
D) $320,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 175
Objective: 7
85) Activity-based accounting systems
A) accumulate overhead costs by department.
B) can turn many indirect overhead costs into direct costs.
C) are less complex and therefore less costly than traditional systems.
D) can be used in manufacturing firms only.
Answer: B
Diff: 1
Type: MC
Page Ref: 175
Objective: 7
86) Which of the following statements is FALSE?
A) Activity-based accounting systems classify more costs as indirect than do traditional systems.
B) Activity-based accounting systems can create more accurate product costs.
C) Activity-based accounting systems are more complex and costly than traditional systems.
D) Activity-based accounting systems are used in both manufacturing and nonmanufacturing industries.
Answer: A
Diff: 1
Type: MC
Page Ref: 175
Objective: 7
87) Which of the following is NOT a name for a system that first accumulates overhead costs for each of
the activities of an organization, and then assigns the costs of activities to the products, services, or other
cost objects that caused that activity?
A) Activity-based accounting
B) Cost-driver accounting
C) Transaction-based accounting
D) Transaction costing
Answer: B
Diff: 1
Type: MC
Page Ref: 175
20
Objective: 7
John Gordan Company had the following activities, traceable costs, and physical flow of driver units:
Activities
Account inquiry (hours)
Account billing (lines)
Account verification (accounts)
Correspondence (letters)
Traceable
Costs
$ 200,000
140,000
75,000
25,000
Physical Flow of
Driver Units
5,000 hours
2,000,000 lines
20,000 accounts
2,000 letters
The above activities are used by departments A and B as follows:

A
1,000 hours
200,000 lines
5,000 accounts
500 letters
B
2,000 hours
100,000 lines
4,000 accounts
800 letters
88) What is the cost per driver unit for the account inquiry activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: A
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
89) What is the cost per driver unit for the account billing activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: B
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
90) What is the cost per driver unit for the account verification activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: C
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
21
91) What is the cost per driver unit for the correspondence activity?
A) $40.00
B) $0.07
C) $3.75
D) $12.50
Answer: D
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
92) How much of the account inquiry cost will be assigned to Department A?
A) $40,000
B) $200,000
C) $80,000
D) None of the above
Answer: A
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
93) How much of the account billing cost will be assigned to Department B?
A) $14,000
B) $140,000
C) $7,000
Answer: C
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
94) How much of the correspondence cost will be assigned to Department B?
A) $5,000
B) $8,000
C) $25,000
Answer: D
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
22
Allen Crabb Corporation had the following activities, traceable costs, and physical flow of driver units:
Activities
Traceable
Costs
$400,000
280,000
150,000
50,000
Physical Flow of
Driver Units
5,000 hours
2,000,000 lines
20,000 accounts
2,000 letters
The above activities are used by departments X and Y as follows:

X
500 hours
250,000 lines
2,000 accounts
200 letters
Y
800 hours
200,000 lines
1,000 accounts
1,000 letters
95) How much of the correspondence cost will be assigned to Department X?

A) $5,000
B) $50,000
C) $25,000
Answer: A
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
96) How much of the account inquiry cost will be assigned to Department Y?
A) $400,000
B) $40,000
C) $64,000
D) $104,000
Answer: C
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
97) How much of the account verification cost will be assigned to Department Y?
A) $150,000
B) $7,500
C) $15,000
D) $22,500
Answer: B
Diff: 2
Type: MC
Page Ref: 180
Objective: 9
23
98) A cost-management system

A) first measures the resources used by each department.
B) assesses the effects of changes in costs on the departments.
C) identifies how management's decisions affect costs.
D) distinguishes between product costs and period costs.
Answer: C
Diff: 2
Type: MC
Page Ref: 162
Objective: 1
Use the following information to answer item(s) below.
Meesen Inc. operates two support departments (A and B) and two producing departments (C and D).
Budgeted costs and normal activity levels are given below.
Overhead costs
Number of employees
Maintenance hours
Machine hours
Labour hours
Support Departments Producing Departments

A
B
C
D
$120,000
$160,000
$300,000
$240,000
8
12
40
60
3,000
400
8,000
2,000
12,000
1,500
1,800
15,000
-
The costs of Department A are allocated on the basis of number of employees, and the costs of
Department B are allocated on the basis of maintenance hours.
99) If the direct method is used, Department A costs allocated to Department C would be
A) $48,000.
B) $96,000.
C) $72,000.
D) $120,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
100) If the direct method is used, Department B costs allocated to Department C would be
A) $192,000.
B) $160,000.
C) $128,000.
D) $180,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
24
101) If Department C uses machine hours to allocate overhead to units of product, the overhead rate per
machine hour for Department C would be
A) $35.67.
B) $29.00.
C) $32.66.
D) $39.67.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
102) If Department D uses direct labour hours to allocate overhead to units of product, the overhead rate
per direct labour hour for Department D would be
A) $22.93.
B) $18.13.
C) $16.80.
D) $16.00.
Answer: A
Diff: 2
Type: MC
Page Ref: 193
Objective: 1
103) Estimates relating to a job that Meesen Inc. plans to bid on are as follows:
Direct materials
Direct labour
Machine hours in Department C
Direct labour hours in Department D
$1,000
$ 600
20
30
The estimate for the cost of the job would be

A) $2,393.
B) $2,288.
C) $1,481.
D) $3,081.
Answer: D
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
104) If the step-down method is used and the costs of the service department with the greatest total cost
are allocated first, Department B costs allocated to Department D would be
A) $36,923.
B) $30,463.
C) $24,615.
D) $21,450.
Answer: C
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
25
105) If the step-down method is used, Department A costs allocated to Department C would be
A) $60,649.
B) $62,769.
C) $62,980.
D) $69,280.
Answer: B
Diff: 2
Type: MC
Page Ref: 169
Objective: 5
106) The necessary cost of an activity that cannot be eliminated without affecting a product's value to the
customer is a
A) period cost.
B) product cost.
C) prime cost.
D) value-added cost.
Answer: D
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
107) Which of the following is NOT an example of a non-value-added cost?
A) Receiving inventory
B) Transporting work-in-process
C) Warehousing inventory
D) Assembling raw materials
Answer: D
Diff: 1
Type: MC
Page Ref: 169
Objective: 5
108) In a just-in-time production system,
A) customer orders drive the production process.
B) an organization purchases materials in large quantities in order to receive quantity discounts.
C) goods are produced ahead of time to protect against stockouts.
D) inventory levels are maintained as high as possible.
Answer: A
Diff: 1
Type: MC
Page Ref: 186
Objective: 12
109) The time from initiating production to delivering the goods to the customer is referred to as
A) just-in-time.
B) non-value-added time.
C) production cycle time.
D) cost measuring time.
Answer: C
Diff: 1
Type: MC
Page Ref: 186
Objective: 12
26
110) Which of the following is NOT a factor to the success of just-in-time systems?
A) The focus on quality
B) Inflexible production operations
C) Short production cycle times
D) Smooth flow of production
Answer: B
Diff: 1
Type: MC
Page Ref: 186
Objective: 12
111) Two dimensions are important in flexible production operations:
A) material flexibility and employee flexibility.
B) employee flexibility and facilities flexibility.
C) supplier flexibility and customer flexibility.
D) facilities flexibility and supplier flexibility.
Answer: B
Diff: 1
Type: MC
Page Ref: 186
Objective: 12
112) The techniques used to determine the cost of a product or service by collecting and classifying costs
and assigning them to cost objectives.
Answer: Cost accounting system
Diff: 1
Type: SA Page Ref: 162
Objective: 1
113) A system that first accumulates overhead costs for each of the activities of an organization, and then
assigns the costs of activities to the products, services, or other cost objects that caused that activity.
Answer: Activity-based accounting
Diff: 1
Objective: 8
114) A unit within an organization responsible for producing the products or services that are sold to
customers.
Answer: Producing department
Diff: 1
Objective: 1
115) A unit within an organization that provides essential support services for producing departments.
Answer: Service department
Diff: 1
Objective: 1
116) A method that simultaneously allocates service costs to all user departments. It gives full
consideration to interactions among support departments.
Answer: Reciprocal allocation method
Diff: 1
Objective: 5
27
117) A method of allocating support department costs that gives partial consideration to interactions
among support departments.
Answer: Step-down method
Diff: 1
Objective: 5
118) A method of allocating service costs that ignores any interactions that may exist among support
departments.
Answer: Direct method
Diff: 1
Objective: 4
119) Identifies how management's decisions affect costs, by first measuring the resources used in
performing the organization's activities and then assessing the effects on costs of changes in those
activities.
Answer: Cost-management system
Diff: 1
Objective: 1
120) The time from initiating production to delivering the goods to the customer.
Answer: Production cycle time
Diff: 2
Objective: 12
121) A system in which an organization purchases materials and parts and produces components just
when they are needed in the production process.
Answer: Just-in-time production system
Diff: 1
Objective: 12
28
122) Henry Company has three support departments and two producing departments. Information for
each department for 2006 is as follows:
Support Departments
Producing Departments
Plant
Plant
Plant
Administration Maintenance Cafeteria
Budgeted
overhead
costs
Machining Assembly
$120,000
$100,000
$50,000
$200,000
$400,000
Direct labour
hours
6,000
10,000
4,000
20,000
30,000
Square feet
occupied
2,000
3,000
5,000
35,000
65,000
Number of
employees
15
25
Plant administration costs are allocated based on direct labour hours, plant maintenance costs are
allocated based on square footage occupied, and plant cafeteria costs are allocated based on the number
of employees.
The company does not divide overhead into fixed and variable components. Predetermined overhead
rates for the producing departments are based on direct labour hours.
Allocate the support department costs using the direct method. Next calculate the predetermined
overhead rates the producing departments would use to apply overhead to units of product.
29
Answer:
Budgeted
overhead cost
Allocate Plant
Administration
(20,000/50,000,
30,000/50,000)
Support Departments
Plant
adminstration
Plant
Maintenance
$120,000
$100,000
Plant
Cafeteria
$50,000
($120,000)
Allocate Plant
Maintenance
(35,000/100,000,
65,000/100,000)
($100,000)
Allocate Plant
Cafeteria (15/40, 25/40)
($50,000)
Total Producing
Department
Overhead to Apply
Divided by DLH
Predetermined
Overhead
Diff: 3
Type: ES
Objective: 5
Page Ref: 169
Machining
Assembly
$200,000
$400,000
48,000
72,000
35,000
65,000
18,750
31,250
$301,750
$568,250
20,000
30,000
$15.0875
$18.9417
30
123) Henry Company has three support departments and two producing departments. Information for
each department for 2006 is as follows:
Support Departments
Plant
Plant
Plant
Administration Maintenance Cafeteria
Budgeted
overhead
costs
Machining Assembly
$120,000
$100,000
$50,000
$200,000
$400,000
Direct labour
hours
6,000
10,000
4,000
20,000
30,000
Square feet
occupied
2,000
3,000
5,000
35,000
65,000
Number of
employees
15
25
Plant administration costs are allocated based on direct labour hours. Allocate the support depart ment
costs using the sequential (step) method starting with the support department with the greatest total cost.
Then calculate the predetermined overhead rates the producing departments would use to apply
overhead to units of product.
31
Answer:
Budgeted
overhead cost
Support Departments
Plant
Administration
Plant
Maintenance
Plant
Cafeteria
Machining
Assembly
$120,000
$100,000
$50,000
$200,000
$400,000
18,750
7,500
37,500
56,250
5,655
39,583
73,512
23,683
39,472
$300,766
569,234
20,000
30,000
$15.0383
$18.9745
Allocate Plant
Administration ($120,000)
(10/54, 4/64,
20/64, 30/64)
Total Cost in
Plant
Maintenance
Allocate Plant
Maintenance
(5/105, 35/105, 65/105)
$118,750
($118,750)
Total Cost in
Plant Cafeteria
$63,155
Allocate Plant
Cafeteria
(15/40, 25/40)
($63,155)
Total Producing
Department
Overhead to
Apply
Divided by DLH
Predetermined
Overhead
Diff: 3
Type: ES
Objective: 5
Page Ref: 169
32
124) There are three Easy Stay Inns, one in each of the following cities: Britton, Casey, and Sloop.
The central office provides computer services to each of the three motels. Information pertaining to the
computer centre and the three motels follows.
Computer
Centre
Britton
Casey
Sloop
Budgeted fixed costs

Budgeted variable rate
per hour
Normal usage in hours
$150,000
25
1,000
1,200
300
Actual fixed costs

Actual variable costs
Actual usage in hours
$160,000
$ 70,000
-
800
1,400
400
$
-
a. Using the direct method, allocate the computer centre costs to each motel location to provide
information for setting room rates.
b. Using the direct method, allocate the computer centre costs to each motel location assuming the
purpose is to evaluate performance.
c. Did the total amount allocated in requirement (B) above differ from the amount of costs incurred by the
computer centre?
Answer:
a.
Britton
Casey
Sloop
Variable costs allocated:
($25 x 1,000 hours)
($25 x 1,200 hours)
($25 x 300 hours)
$25,000
Fixed costs allocated:

[(1,000 hours/2,500 hours) x $150,000] 60,000
[(1,200 hours/2,500 hours) x $150,000]
[(300 hours/2,500 hours) x $150,000] _______
Total costs allocated
$85,000
$30,000
$ 7,500
72,000
________
18,000
$102,000
$25,500
33
b.
($25 x 800 hours)
($25 x 1,400 hours)
($25 x 400 hours)
Britton
$20,000
Casey
$35,000
Sloop
$10,000

[(1,000 hours/2,500 hours) x $150,000] 60,000
[(1,200 hours/2,500 hours) x $150,000]
[(300 hours/2,500 hours) x $150,000] _______
72,000
________
18,000
$107,000
$28,000
$80,000
c. Actual costs incurred by the computer centre equalled $230,000 ($70,000 + $160,000).
To prevent passing inefficiencies of support departments on to other departments, only budgeted support
department costs are allocated.
Therefore, only the budgeted computer centre costs of $215,000 were allocated to the three motels.
The $15,000 excess ($230,000 - $215,000) is charged to the computer centre.
Diff: 3
Type: ES
Page Ref: 169
Objective: 5
34
125) Netton Bus Lines provides school bus service to two school districts: East and West.
Taylor has one support centre that is responsible for service, maintenance, and cleanup of its buses. The
costs of the support centre are allocated to each district on the basis of total kilometres driven.
During the first month of the year, the support centre was expected to spend a total of $100,000. Of this
total, $25,000 was viewed as being fixed.
During the month, the support centre incurred actual variable costs of $105,000 and actual fixed costs of
$20,000.
The normal and actual kilometres logged by each district are given below:
Normal activity
Actual activity
East
170,000
175,000
West
80,000
90,000
a. Compute the predetermined service cost per kilometre driven.

b. Compute the costs that would be allocated at the end of the month to each district for purposes of
performance evaluation.
c. Determine the costs of the support centre that were not allocated to the two districts. Why were these
costs not allocated to the districts?
Answer:
a. $0.40 ($100,000/250,000)
b.
East
West

($0.30* x 175,000 kilometres)
($0.30 x 90,000 kilometres)
$52,500
$27,000

[(170,000/250,000) x $25,000]
[(80,000/250,000) x $25,000]
17,000
_______
8,000
$69,500
$35,000
*Budgeted variable costs = $100,000 - $25,000 = $75,000

Variable rate per kilometres - $75,000/250,000 = $0.30
35
c.
Actual costs incurred
$125,000

($69,500 + $35,000)
104,500
Unallocated
$ 20,500
These costs were not allocated to the districts because the costs were associated with support department
inefficiency.
Diff: 3
Type: ES
Page Ref: 169
Objective: 5
36
126) Clark Corp. has three service departments, Chocolate, Caramel, and Nougat, as well as two
production departments, Melting and Wrapping. The Chocolate and Caramel department costs are
allocated based upon ounces, and the Nougat department's costs based upon pieces. The following
information is also available:
Direct
Department
Costs
Number
of
Ounces
$900,000
760,000
690,000
10,000
6,400
7,400
8,000
5,600
6,200
Production departments:
Melting
260,000
Wrapping
170,000
23,000
8,400
19,400
10,200
Service departments:
Chocolate
Caramel
Nougat
Number
of
Pieces
Required: Assume the step-down method of allocating costs is used, and the Chocolate department
renders the greatest service, with the Caramel department a close second. Determine the amount of each
service department's costs that will be allocated to each production department.
Answer:
Chocolate department:
6,400 + 7,400 + 23,000 + 8,400 = 45,200
6,400/45,200 $900,000 = $127,434 Caramel
7,400/45,200 $900,000 = $147,345 Nougat
23,000/45,200 $900,000 = $457,965 Melting
8,400/45,200 $900,000 = $167,257 Wrapping
Caramel department:
$760,000 + $127,434 = $887,434
7,400 + 23,000 + 8,400 = 38,800
7,400/38,800 $887,434 = $169,253 Nougat
23,000/38,800 $887,434 = $526,056 Melting
8,400/38,800 $887,434 = $192,125 Wrapping
Nougat department:
$690,000 + $147,345 + $169,253 = $1,006,598
19,400 + 10,200 = 29,600
19,400/29,600 $1,006,598 = $659,730 Melting
10,200/29,600 $1,006,598 = $346,868 Wrapping
Diff: 3
Type: ES
Objective: 5
Page Ref: 169
37
127) Rogers Company manufactures three products from a joint process. The Disk and the Jet can be sold
at split-off, but the Beam must be processed further at a total cost of $36,000. Total joint costs for the year
amounted to $1,740,000. Additional data are as follows:
Product
Disk
Jet
Beam
Units Produced
68,500
35,500
16,000
Sales Price per Unit

$11.00
$ 8.40
$ 6.20
Required: Using the relative-sales-value method of allocating joint costs, determine the joint costs
allocated to each product.
Answer:
Disk:
68,500 $11.00 = $753,500
Jet:
35,500 $8.40 = $298,200
Beam:
16,000 $6.20 = $99,200 - $36,000 = $63,200
$753,500 + $298,200 + $63,200 = $1,114,900
Disk:
$753,500/$1,114,900 $1,740,000 = $1,175,971
Jet:
$298,200/$1,114,900 $1,740,000 = $465,394
Beam:
$ 63,200/$1,114,900 $1,740,000 = $98,635
Diff: 3
Type: ES
Page Ref: 169
Objective: 5
38
128) Berlau Corp. manufactures two models of its curling iron, a standard and a deluxe model. Three
Product
Standard
Deluxe
Costs per pool
Number of
Material
Requisitions
92
124
$108,000
Number of
Product
Inspections
46
62
$16,400
Number of
Orders
Shipped
334
258
$206,000
Required: Assuming activity-based costing is used, allocate each cost pool to each model.
Answer:
Number of Material Requisitions:
92 + 124 = 216
92/216 $108,000 = $46,000 Standard
124/216 $108,000 = $62,000 Deluxe
Number of Product Inspections:
46 + 62 = 108
46/108 $16,400 = $6,985 Standard
62/108 $16,400 = $9,415 Deluxe
Number of Orders Shipped:
334 + 258 = 592
334/592 $206,000 = $116,223 Standard
258/592 $206,000 = $89,777 Deluxe
Diff: 3
Type: ES
Page Ref: 169
Objective: 5
39

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Management Accounting, Cdn.

9) The company cafeteria is an example of a producing department.

18) In activity-based costing, costs are classified as either direct or indirect.

Long-run capacity available*

Page Ref: 169

Long-run capacity available*

Page Ref: 169

Page Ref: 169

Direct dept. costs

Page Ref: 169

Direct dept. costs

64) Which of the following statements regarding by-products is FALSE?

The above activities are used by departments A and B as follows:

Account inquiry (hours)

The above activities are used by departments X and Y as follows:

Account inquiry (hours)

95) How much of the correspondence cost will be assigned to Department X?

98) A cost-management system

Support Departments Producing Departments

The estimate for the cost of the job would be

Page Ref: 169

Page Ref: 169

Budgeted fixed costs

Actual fixed costs

Fixed costs allocated:

Fixed costs allocated:

Total costs allocated

a. Compute the predetermined service cost per kilometre driven.

Variable costs allocated:

Fixed costs allocated:

Total costs allocated

*Budgeted variable costs = $100,000 - $25,000 = $75,000

Actual costs incurred

Total costs allocated

Page Ref: 169

Sales Price per Unit

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