1. To allocate corporate costs to divisions, the allocation base used should:
be an output unit-level base
have the best cause-and-effect relationship with the costs
combine administrative costs and human resource management costs
allocate the full costs
1. To improve customer profitability, companies should:
strictly enforce their volume-based price discounting policy
track discounts by customer
track discounts by sales person
Both B and C are correct.
1. ________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships.
Customer cost hierarchy
1. Dropping an unprofitable customer will:
eliminate long-run costs assigned to that customer
eliminate most short-run costs assigned to that customer
decrease long-run profitability
increase the potential to cross-sell other products that are more desirable
1. Edna’s Flowering Plants provides the following information for the month of May:
Actual Actual Budget Budget
Fuchsia Dogwood Fuchsia Dogwood
Sales in Units 10,000 2,500 8,000 2,000
Contribution margin per unit $9 $7 $10 $8
2. What is the budgeted contribution margin per composite unit for the budgeted mix?
1. Zorro Company manufactures remote control devices for garage doors. The following information was collected during June:
Actual market size (units) 10,000
Actual market share 32%
Actual average selling price $10.00
Budgeted market size (units) 11,000
Budgeted market share 30%
Budgeted average selling price $11.00
Budgeted contribution margin per
composite unit for budgeted mix $ 5.00
What is the market-size variance?
1. Same data as question #6
What is the sales-quantity variance?
The variance cannot be determined
1. The Fancy Flier Airplane Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:
Budgeted costs of operating the materials laboratory
for 10,000 to 20,000 technician hours per year:
Fixed costs per year $600,000
Variable costs $80 per technician hour
Budgeted long-run usage in hours per year:
Large Plane Department 9,000 technician hours
Small Plane Department 7,000 technician hours
Budgeted amounts are used to calculate the allocation rates. Actual usage for the year by the Large Plane Department was 6,000 technician hours and by the Small Plane Department was 6,500 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Small Plane Department?
1. When budgeted cost-allocations rates are used:
variations in actual usage by one division affect the costs allocated to other divisions
the manager of the supplier division bears the risk of unfavorable cost variances
user divisions pay for costs that exceed budgeted amounts
user divisions pay for inefficiencies of the supplier department
1. The support department allocation method that is the most widely used because of its simplicity is the:
reciprocal allocation method
direct allocation method
sequential allocation method
1. Under the stand-alone method of allocating common costs:
a ranking is used to allocate costs among the users
disputes can arise over who is the primary user
each party bears a proportionate share of the total costs in relation to their individual stand-alone costs
an incentive is created to be the first-ranked user
1. The Sturgeon Bay Corporation currently uses a manufacturing facility costing $400,000 per year; 80% of the facility’s capacity is currently being used. A start-up business has proposed a plan that would utilize the other 20% of the facility and increase the overall costs of maintaining the space by 5%. If the stand-alone method were used, what amount of cost would be allocated to the start-up business?
1. The method LEAST likely to cause disputes among product managers is:
stand-alone revenue-allocation method
incremental revenue-allocation method
the direct revenue-allocation method
All of these answers are correct.
1. Which of the following statements is true regarding main products and byproducts?
Product classifications do not change over the short run.
Product classifications do not change over the long run.
Product classifications may change over time.
The cause-and-effect criterion determines the classification.
1. Proper costs allocation for inventory costing and cost-of-goods-sold computations are important because:
inventory costing is essential for proper balance sheet presentation
most states have laws requiring proper balance sheet presentation and recommended allocation methods
cost of goods sold is an important component in the determination of net income
Both A and C are correct.
1. Product X is sold for $8 a unit and Product Y is sold for $12 a unit. Each product can also be sold at the splitoff point. Product X can be sold for $5 and Product Y for $4. Joint costs for the two products totaled $4,000 for January for 600 units of X and 500 units of Y. What are the respective joint costs assigned each unit of products X and Y if the sales value at splitoff method is used?
$2.96 and $4.44
$4.00 and $4.55
$4.00 and $3.20
$4.55 and $4.55
1. What is the reason that accountants do not like to carry inventory at net realizable value?
NRV is the most difficult costing method
NRV recognizes income after the sale is complete
NRV recognizes income before sales are made
NRV is acceptable to the taxing authorities
1. What factor most often drives joint cost allocation?
simplicity of the method
1. Sparta Company processes 15,000 gallons of direct materials to produce two products, Product X and Product Y. Product X sells for $4 per gallon and Product Y, the main product, sells for $50 per gallon. The following information is for August:
Production Sales Inventory Inventory
Product X 4,375 4,000 0 375
Product Y 10,000 9,625 125 500
2. The manufacturing costs totaled $15,000. What is the byproduct’s net revenue reduction if byproducts are recognized in the general ledger during production and their revenues are a reduction of cost?
1. Which statement is NOT true regarding the sales method of accounting for byproducts.
the method makes no journal entries until the byproduct is sold
this method is the preferred method because of the matching principle
revenues of the byproduct can be recorded in the income statement as revenue
revenues of the byproduct can be recorded as a reduction of cost of goods sold in the income statement
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