Management Accounting Information for Creating and Managing Value by Kim Langfield Smith 8th Edition-Test Bank

Management Accounting Information for Creating and Managing Value by Kim Langfield Smith 8th Edition-Test Bank

Chapter 07 Test Bank – Static KEY

1. Which of the following statements is false? Manufacturing overhead costs are:

A. sometimes called factory burden.
B. indirect product costs.
C. all manufacturing costs other than direct material and direct labour.
D. non-existent in service firms.

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.01 Explain the nature of overhead costs and other indirect costs

2. A cost pool is:

A. a collection of costs to be assigned.
B. the joint result of several subunit activities.
C. the primary function of a responsibility accounting system.
D. a performance report of the lowest level manager.

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.02 Describe the general principles for allocating indirect costs to cost objects

3. The process of assigning the costs in a cost pool to the cost objects is called:

A. cost allocation.
B. segmented profit and loss statement.
C. variance.
D. absorption costing.

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.02 Describe the general principles for allocating indirect costs to cost objects

4. Which of the following is a common base to distribute the cost of building depreciation to responsibility centres?

A. Number of employees in responsibility centre
B. Budgeted sales dollars in responsibility centre
C. Square metres of space occupied by responsibility centre
D. Budgeted direct costs of operating the responsibility centre

AACSB: Reflective Difficulty: Medium
Learning Objective: 7.07 Explain the relevant issues in estimating overhead rates, including identifying cost drivers, choosing volume-based and non-volume-based cost drivers, and deciding between
budgeted and actual overhead rates

5. An allocation base may also be referred to as a:

A. cost object.
B. common cost.
C. cost driver.
D. joint base.

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.01 Explain the nature of overhead costs and other indirect costs

6. Each cost pool is distributed to each responsibility centre in:

A. proportion to that centre’s relative amount of allocation base.
B. proportion to that centre’s relative amount of direct cost.
C. proportion to that centre’s relative amount of liabilities.
D. proportion to that centre’s relative amount of profit.

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.02 Describe the general principles for allocating indirect costs to cost objects

7. Consider the following statements regarding cost allocation.
i. Allocation of budgeted costs is preferred to actual cost as this minimises the possibility that the actions of one user department will affect the costs allocated to another user department.

ii. Allocation of standard budgeted rates is preferred, so the user department does not have to bear the inefficiencies of support departments.

iii. Knowing the standard rates in advance allows the user departments to plan their activities with greater certainty. Which statement/s is/are true?

A. i
B. i and ii
C. i, ii and iii
D. ii and iii

AACSB: Reflective Difficulty: Medium
Learning Objective: 7.09 Discuss the general principles and reasons for allocating indirect costs to responsibility centres

8. Budgeted amounts of allocation bases, rather than actual amounts, are preferable allocation bases because:

A. when actual amounts are used the behaviour of one responsibility centre affects the costs allocated to other responsibility centres.
B. budgeted amounts are known in advance, therefore costs are easier to allocate.
C. the use of actual amounts could cause fluctuations in the prices charged for a company’s products or services.
D. budgeted amounts are known in advance, therefore costs are easier to allocate AND the use of actual amounts could cause fluctuations in the prices charged for a company’s products or services.

AACSB: Reflective Difficulty: Medium
Learning Objective: 7.09 Discuss the general principles and reasons for allocating indirect costs to responsibility centres

9. The step/s used in cost allocation include/s:

A. cost application.
B. cost distribution.
C. support department cost allocation.
D. All of the given answers

AACSB: Reflective Difficulty: Easy
Learning Objective: 7.04 Use the two-stage allocation process to estimate departmental overhead rates and allocate overhead costs to products

10. If the relationship between overhead costs and the cost drivers differs substantially across production departments, the firm should use:

A. a plantwide overhead rate.
B. multiple-departmental overhead rates.
C. actual overhead activity.
D. machine hours to determine the overhead rate.