Chapter 11 Cost Accounting

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Test Bank Practice

21. Which of the following is the least practical reason for allocating service department costs to user departments?
A. To ascertain profitability of user departments.
B. To evaluate performance of managers and divisions.
C. To make user departments aware that services are costly.
D. To provide the best possible service to users.

D. To provide the best possible service to users.

22. Service department costs are
A. generally treated as period costs rather than product costs.
B. reported as selling and administrative expenses on the income statement.
C. eventually applied by the user departments to the units produced.
D. seldom found in manufacturing organizations.

C. eventually applied by the user departments to the units produced.

23. A management purpose for allocating joint costs of a processing center to the various products produced is to
A. establish inventory values for unsold units.
B. record accurate cost of sales by product line.
C. compute total processing cost variances by product.
D. report correct standard product costs for comparative analysis.

A. establish inventory values for unsold units.

24. Which of the following service departments could logically use space occupied (square footage) to allocate its costs to user departments?
A. Material Handling
B. Cafeteria
C. Custodial Services
D. Cost Accounting
E. Engineering

C. Custodial Services

25. Which of the following departments is not a service department in a typical manufacturing company?
A. Assembly
B. Accounting
C. Human resources
D. Information processing

A. Assembly

26. Criteria for selecting allocation bases for service department allocations should not include
A. direct, traceable benefits from the service.
B. the extent of facilities provided.
C. the ease of making an allocation.
D. sales dollars generated during the period.

D. sales dollars generated during the period.

27. Which of the following statements is (are) false regarding the direct method of allocating service department costs?
(A) The selection of an allocation base in the direct method is easier than the selection of an allocation base in the step method.
(B) Once an allocation is made from a service department using the direct method, no further allocations are made back to that department.
A. Only A is false.
B. Only B is false.
C. Neither A nor B is false.
D. Both A and B are false.

A. Only A is false.

28. Which of the following methods provides no data for service departments to monitor each other's costs?
A. Direct method.
B. Reciprocal method.
C. Step method.
D. All three methods, Direct, Reciprocal, and Step, provide data for monitoring costs.

A. Direct method.

29. If two service departments service the same number of departments, which service department's costs should be allocated first when using the step method?
A. The service department that provides the most service to other service departments.
B. The service department that provides the most service to the user departments.
C. The service department with the least cost.
D. The service department that provides the least service to other service departments.
E. The service department that provides the least service to the user departments.

A. The service department that provides the most service to other service departments.

30. Which of the following is a weakness of the step method of service cost allocations?
A. Computations are more complex than the reciprocal method.
B. All interdepartmental services are ignored.
C. All intradepartmental services are ignored.
D. The order of service department allocation has to be determined.

D. The order of service department allocation has to be determined.

31. LaCrescent University has 20 departments. Two of its best departments are the (1) College of UBW (Underwater Basket Weaving) and (2) Testing Services. The College of UBW attempts to teach students the difficult, but useful, skill of weaving baskets underwater. Testing Services grades examinations for professors. How would these two departments be classified?


A. a
B. b
C. c
D. d

B. b (user/service)

32. Joint products and byproducts are produced simultaneously by a single process or series of processes and
A. joint products are salable at the split-off point, but byproducts are not.
B. byproducts are salable at the split-off point, but joint products are not.
C. the revenue from byproducts may be recognized at the time of production.
D. all byproducts must be allocated some portion of joint costs.

C. the revenue from byproducts may be recognized at the time of production.

33. Which of the following best describes the objective of joint cost allocation?
A. Inventory valuation.
B. Pricing goods for sale.
C. Making decisions about levels of production.
D. Making decisions about raw materials requirements.

A. Inventory valuation.

34. Allocated joint costs are useful for
A. setting the selling price of a product.
B. determining whether to continue producing an item.
C. controlling user department costs.
D. evaluating management by means of a responsibility reporting system.
E. determining inventory cost for accounting purposes.

E. determining inventory cost for accounting purposes.

35. Which of the following cost items is not allocable as joint costs when a single manufacturing process produces several main products and several by-products?
A. Direct materials
B. Variable overhead
C. Direct labor
D. Fixed overhead
E. Freight-out

E. Freight-out

36. For purposes of allocating joint costs to joint products, the estimated net realizable value at split-off is equal to
A. final sales price reduced by cost to complete after split-off.
B. sales price less a normal profit margin at the point of sale.
C. separable product cost plus a normal profit margin.
D. total sales value less joint costs at point of split-off.

A. final sales price reduced by cost to complete after split-off.

37. The method of accounting for joint product costs that will produce the same gross margin percentage for all products is the
A. replacement method.
B. physical quantities method.
C. net realizable value method.
D. units produced method.

C. net realizable value method.

38. Which of the following statements is false?
A. The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.
B. In general, it is better to use a product's market value at the split-off point than its estimated net realizable value.
C. The estimated net realizable value at the split-off point is calculated by taking the sales value after further processing and deducting the additional processing costs.
D. It is better to use the net realizable value method for allocating joint costs than the estimated net realizable value method.

A. The estimated net realizable value for a product is its estimated selling price after processing the product beyond the split-off point.

39. Net realizable value at the split-off point is used to allocate


A. a
B. b
C. c
D. d

B. b (No/Yes)

40. Which of the following is not a physical measure that can be used for allocating joint costs using the physical quantities method?
A. Tons of steel
B. Ounces of gold
C. Dollars of labor
D. Feet of lumber

C. Dollars of labor

41. Product C is one of several joint products that come out of Department M. The joint costs incurred in Department M total $40,000. Product C can be sold at split-off or processed further and sold as a higher quality item. The decision to process further should be based on the
A. assumption that the $40,000 is irrelevant.
B. allocation of the $40,000, using the net realizable value.
C. allocation of the $40,000, using a physical measures approach.
D. allocation of the $40,000, using the relative sales value at split-off method.

A. assumption that the $40,000 is irrelevant.

42. The characteristic that is most often used to distinguish a product as either a main product or a by-product is the amount of
A. sales value of the products produced during the common production process.
B. direct manufacturing costs (e.g., materials) incurred before the split-off point.
C. physical measures in the products produced during the common production process.
D. time (i.e., labor) required to produce the products from start to finish.

A. sales value of the products produced during the common production process.

43. Products with a relatively minor sales value are called
A. scrap.
B. spoilage.
C. by-products.
D. main products.

C. by-products.

44. Bagley Company has two service departments and two producing departments. Square footage of space occupied by each department follows:



The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $38,000, the amount of cost allocated to General Administration under the direct method would be
A. $0.
B. $7,125.
C. $6,000.
D. $5,700.

A. $0.

45. Castle Company has two service departments and two producing departments. The number of employees in each department is



The department costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to Department B under the direct method would be
A. $0.
B. $17,187.50.
C. $16,875.00.
D. $18,021.84.

D. $18,021.84.

46. If common computer service costs are allocated using computer time as the allocation basis, what is the computer cost allocated to Division B?
A. $136,190
B. $137,647
C. $144,444
D. $173,333

A. $136,190

47. Using the most appropriate allocation basis, what is the personnel cost allocated to Division A?
A. $58,143
B. $74,643
C. $76,463
D. $110,000

B. $74,643

48. If all common costs are allocated using operating profit as the allocation basis, what is the total cost allocated to Division B?
A. $457,286
B. $512,714
C. $555,000
D. $1,087,576

A. $457,286

49. Castle Company has two service departments and two user departments. The number of employees in each department is



The fixed costs of the Personnel Department are allocated on a basis of the number of employees. If these costs are budgeted at $37,125 during a given period, the amount of cost allocated to the Cafeteria under the step method would be
A. $0.
B. $1,718.75.
C. $1,687.50.
D. $1,802.18.

B. $1,718.75.

50. How much rent is allocable to the assembly department using the direct method of allocation?
A. $420,000
B. $332,500
C. $300,000
D. $252,000

A. $420,000

51. How much rent would be charged to S4 using the step method of allocation and a S3-S4-S1-S2 sequence for the allocations?
A. $36,000
B. $40,000
C. $54,000
D. $90,000

B. $40,000

52. Under the step method (Op first), what is the cost of the computer time and the computer programs for sale?


A. a
B. b
C. c
D. d
E. e

B. b (3150/3850)

53. Under the reciprocal method what is the algebraic solution to the cost allocation problem?
A. Op = 4,500 + .40 P; P = 2,500 + .30 Op.
B. Op = 4,500 + .70 P; P = 2,500 + .60 Op.
C. Op = 2,500 + .40 P; P = 4,500 + .30 Op.
D. Op = 2,500 + .70 P; P = 4,500 + .60 Op.

A. Op = 4,500 + .40 P; P = 2,500 + .30 Op.

54. What is the Maintenance Department's cost allocated to Department A using the direct method?
A. $92,000
B. $230,000
C. $276,000
D. $386,400

C. $276,000

55. What is the Accounting Department's cost allocated to Department B using the direct method?
A. $40,000
B. $80,000
C. $20,000
D. $10,000

A. $40,000

56. What is the Maintenance Department's cost allocated to Department B using the step method and assuming the Maintenance Department's costs are allocated first?
A. $276,000
B. $230,000
C. $322,000
D. $23,810

D. $23,810

57. What is the cost of the Accounting Department's cost allocated to Department A using the stefp method and assuming the Maintenance Department's costs are allocated first?
A. $81,333
B. $81,587
C. $80,000
D. $68,571

B. $81,587

58. Under the step method of allocation, how much Clerical service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)
A. $12,689
B. $13,100
C. $13,620
D. $15,596
E. $16,070

B. $13,100

59. Under the direct method of allocation, what is the total amount of service cost allocated to the Legal Advice operation for June? (Round all calculations to the nearest whole dollar.)
A. $6,231
B. $7,720
C. $8,640
D. $9,330
E. $9,804

C. $8,640

60. Using the simultaneous solution method, department A's cost allocated to department C is
A. $48,000
B. $58,800
C. $60,619
D. $98,000

C. $60,619

61. Using the simultaneous solution method, department B's cost allocated to department C is
A. $29,021
B. $14,021
C. $13,192
D. $7,794

B. $14,021

62. The equation for department P1 (subassemblies) is
A. P1 = $550,000 + .25P2 + .20P3 + .15S2 + 10S3.
B. P1 = $550,000 + .30S1 + .50S2 + .20S3.
C. P1 = .30S1 + .50S2 + 20S3.
D. P1 = .30S1 + .50S.

B. P1 = $550,000 + .30S1 + .50S2 + .20S3.

63. The equation for department P2 (final assembly) is
A. P2 = .25S1 + .50S2 + .30S3.
B. P2 = $775,000 + .25P2 + .20P3 + .15S2 + .10S3.
C. P2 = $775,000 + .30S1 + .50S2 + .20S3.
D. P2 = $775,000 + .25S1 + .50S2 + .30S3.

D. P2 = $775,000 + .25S1 + .50S2 + .30S3.

64. The equation for department P3 (marketing) is
A. P3 = $285,000 + .20S1 + .20S3.
B. P3 = $285,000 + .20S1 + .60S2 + .20S3.
C. P3 = $285,000 + .20S1 + .20S2 + .60S3.
D. P3 = $285,000 + .50S1 + .50S3.

A. P3 = $285,000 + .20S1 + .20S3.

65. The equation for department S1 (building occupancy) is
A. S1 = .10S3.
B. S1 = $85,000 + 1.00S3.
C. S1 = $85,000 + .10S3.
D. S1 = $85,000 + .90S2 + .10S3.

C. S1 = $85,000 + .10S3.

66. The equation for department S2 (research and development) is
A. S2 = $120,000 + .15S1 + .65S2 + .20S3.
B. S2 = .15S1 + 20S3.
C. S2 = $120,000 + .15S1 + .20S3.
D. S2 = $120,000 + .40S1 + .60S3.

C. S2 = $120,000 + .15S1 + .20S3.

67. The equation for department S3 (supervision) is
A. S3 = $45,000 + .90S1 + .10S2.
B. S3 = $45,000 + .10S1.
C. S3 = $45,000 + 1.00S1.
D. S3 = .10S1.

B. S3 = $45,000 + .10S1.

68. Products X, Y, and Z are produced from the same process at a cost of $5,200. Five thousand pounds of raw material yields 1,500 X, 2,500 Y, and 1,000 Z. Selling prices are: X $2 per unit, Y $4 per unit, Z valueless. The ending inventory of X is 50 units. What is the value of the ending inventory if joint costs are allocated using net realizable value?
A. $21.67.
B. $31.20.
C. $40.00.
D. $42.00.

C. $40.00.

69. Lite Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows:



Joint costs were allocated using the net realizable value method at split-off approach. The joint costs allocated to product X were
A. $75,000.
B. $100,800.
C. $150,000.
D. $168,000.

D. $168,000.

70. Great Falls Company makes two products, G and H. They are initially processed from the same raw material and then, after split-off, further processed separately. Additional information is as follows:



What are the joint costs allocated to products G and H assuming Great Falls uses the estimated net realizable value approach?


A. a
B. b
C. c
D. d

C. c (4400/2200)

71. Assuming that joint production costs are allocated using the physical quantities method (units produced), what were the costs allocated to Product X?
A. $27,000.
B. $29,000.
C. $33,000.
D. $30,000.

D. $30,000.

72. Assuming that joint product costs are allocated using the net realizable value method, what were the total costs assigned to Product Y?
A. $26,000.
B. $26,796.
C. $27,000.
D. $28,286.

C. $27,000.

73. Raymer Corporation produced 3,660 units, consisting of three separate products, in a joint process for the year. The market for these products was so unstable that it was not practical to estimate the selling price of the products. A cost of $425,000 was incurred in the joint process. Product X's production was 80% of product Y's while product Z's production was 125% of product Y's. What is the amount of the joint cost allocable to product X assuming Raymer uses the physical quantities method of allocation?
A. $111,475
B. $114,865
C. $139,344
D. $141,667

A. $111,475

74. Zebra Manufacturing Company incurred a joint cost of $600,000 in the production of R and S in a joint process. Presently, 1,800 of R and 1,400 of S are being produced each month. Management plans to decrease R's production by 300 units in order to increase the production of S by 500 units. Additionally, this change will require minor modifications, which will add $20,000 to the joint cost. This cost is entirely attributable to product S. What is the amount of the joint costs allocable to R and S before changes to existing production assuming Zebra allocates their joint costs according to the proportion of S and R produced?


A. a
B. b
C. c
D. d

D. d (337500/262500)

75. Lankip Company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. Lankip has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding Lankip's operations for the current month are presented in the chart below. During the month, Lankip incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further.



The amount of joint production cost that Lankip would allocate to the Second Main Product by using the physical quantities method to allocate joint production costs would be
A. $1,200,000
B. $1,260,000
C. $1,500,000
D. $1,575,000

C. $1,500,000

76. If the estimated net realizable value method is used and product Q is accounted for as a main product, how much of the joint costs would be allocated to product R?
A. $38,889
B. $41,667
C. $50,000
D. $62,500

C. $50,000

77. Assume Q is a by-product and Moody uses the cost reduction method of accounting for by-product cost. If estimated net realizable value is used, how much of the joint costs would be allocated to product R?
A. $38,889
B. $43,750
C. $50,000
D. $62,500

B. $43,750

78. If joint costs are allocated based on relative weight of the outputs and all products are main products, how much of the joint costs would be allocated to product P?
A. $43,750
B. $50,000
C. $60,000
D. $62,500

C. $60,000

79. What is the net income of Moody Company if the estimated net realizable value method of joint cost allocation is used?
A. $20,000
B. $50,000
C. $150,000
D. $350,000

B. $50,000

80. Anchorage Company manufactures three main products, L, M and N, from a joint process. Additional information for June production activity follows:



Assuming that the 10,000 units of N were processed further and sold for $78,000 what was Anchorage's gross profit from this sale? Assume the physical quantities method of allocation is used.
A. $21,000
B. $28,500
C. $30,000
D. $66,000

A. $21,000

81. The Freed Company produces three products, X, Y, and Z from a single raw material input. Product Y can be sold at the split-off point for total revenues of $50,000 or it can be processed further at a total cost of $16,000 and then sold for $68,000. Product Y
A. should be sold at the split-off point, rather than processed further.
B. would increase the company's overall net income by $18,000 if processed further and then sold.
C. would increase the company's overall net income by $68,000 if processed further and then sold.
D. would increase the company's overall net income by $2,000 if processed further and then sold.

D. would increase the company's overall net income by $2,000 if processed further and then sold.

82. There are several methods for allocating service department costs to production departments. The method which recognizes service provided by one service department to another but does not recognize reciprocal interdepartmental service is called: (CMA adapted)
A. direct method.
B. variable method.
C. linear method.
D. reciprocal method.
E. step-down method.

E. step-down method.

83. Because this allocation method recognizes that service departments often provide each other with inter-departmental service, it is theoretically considered to be the most accurate method for allocating service department costs to production departments. This method is: (CMA adapted)
A. direct method.
B. variable method.
C. linear method.
D. reciprocal method.
E. step-down method.

D. reciprocal method.

84. For the purposes of allocating joint costs to joint products, the sales price at the point of sale, reduced by the cost to complete after split-off, is assumed to be equal to the (CPA adapted)
A. total costs.
B. joint costs.
C. sales price less a normal profit margin at point of sale.
D. relative sales value at split-off.

D. relative sales value at split-off.

85. In joint product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold in order to maximize profits? (CMA adapted)
A. separable costs after the split-off point
B. joint costs to the spilt-off point
C. sales salaries for the period when the units were produced
D. purchase costs of the materials required for the joint products
E. the company president's salary

A. separable costs after the split-off point

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