Which of the following is not a criterion typically used to allocate indirect fixed costs

journal article

Management International Review

Vol. 22, No. 4 (1982)

, pp. 34-44 (11 pages)

Published By: Springer

https://www.jstor.org/stable/40227655

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Abstract

This paper directs the attention of management to the fact that accounting methods do not always live up to the expectations of their proponants. In this case, direct costing is placed under scrutiny. An examination of the method shows that direct costing, like the system it is intended to replace, still relies upon the allocation of costs. If the avoidance of arbitrary cost allocation is considered desirable then, it is demonstrated, the direct costing method should be abandoned.

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Briefly state why the reciprocal method is the ‘best’ method to allocate support costs.

It considers the use of services provided to and from all service departments

Which statement is true of allocation of support department costs?

A. Its objective is to assign costs to departments that provide services internal to the organization.       B. It often reduces the total support department costs for a company.       C. It is often used for motivating employees.       D. All of the above are true.

Which method recognizes partial interactions between support departments?      

A. the direct method     B. the step-down method       C. the reciprocal method       D. the allocation method

Which of the following departments is a support department for a boat manufacturing company?      

A. Personnel       B. Molding and assembly       C. Fabricating       D. Painting

Which of the following departments is a support department in a typical manufacturing company?    

A. Assembly     B. Accounting       C. Cutting       D. packaging     Assembly is a producing department, not a service department.

Which of the following is a weakness of the direct method of service cost allocations?

A. Computations are more complex than the reciprocal method.     B. All interdepartmental services are ignored.     C. It allocates excessive costs to cost objects.     D. The order of service department allocation has to be determined

1. The direct allocation method allows for no recognition of services rendered by support departments to other support departments.

True. The direct allocation method allows for no recognition of services rendered by support departments to other support departments.

The direct method allocates each support department's costs to operating departments only.

.The direct allocation method incorporates mutual services provided among all support departments.

False. The reciprocal allocation method incorporates mutual services provided among all support departments

Which one of the following would most likely be allocated to products using ABC by a Subway Sandwich shop?   Answers B and D are direct materials. Answer A is direct labor

A. Cost of slicing sandwich meat         B. Cost of 20-pound cheese chunks     C. Cost of plastic gloves worn by sandwich makers     D. Costs of the paper in which the sandwich is wrapped

Which statement comparing ABC and traditional systems is true? ABC is more accurate and has more cost drivers. GAAP allows either method of cost allocation.

A. ABC systems are more expensive than traditional systems. B. Traditional systems generally give more accurate product cost information than ABC. C. ABC systems utilize fewer cost drivers than traditional systems.

For what purpose is ABC used?  

A. To allocate total product costs to cost pools B. To reduce overall manufacturing costs C. To allocate direct and indirect costs D. To identify labor inefficiencies E. To allocate indirect costs to cost objects Only indirect costs are allocated

Which of the following would be most appropriate for allocating the factory building insurance?  

A. # of employees     B. # of square feet     C. # of machine hours     D. # of units produced/sold

Which one of the following is not one of major reasons that companies allocate costs?    

A. To reduce the frivolous use of resources     B. To encourage managers to evaluate the efficiency of services provided     C. To reduce manufacturing overhead costs in a company     D. To determine the proper costing for GAAP purposes

Which of the following is the best activity to allocate factory rent?

A. Machine hours     B. Direct labor hours     C. Number of employees     D. Square footage occupied Rent increases when more square footage is leased

Which of the following is not one of the management's approaches for allocating indirect costs?

A. Volume-related     B. Relative benefits     C. Ability to bear     D. Equity

Which one of the following is not one of major reasons that companies allocate costs?

A. To insure that management will not bear any of the financial risk associated with the related cost     B. To reduce the frivolous use of common resources     C. To encourage managers to evaluate the efficiency of internally provided services     D. To determine the proper costing for GAAP purposes

The relative benefits concepts suggests that Note that answer A describes the ability to bear costs allocation concept.

A. the people who earn high compensation should pay more.     B. those departments which have the larger number of coffee drinkers should bear more of the cost of the supplies purchased for the coffee break room.     C. costs should be assigned only if the manager in charge has the ability to control the cost.     D. cost pools should be allocated based on a cause and effect relationship.

Cost allocation is the process of  

A. assigning direct costs to specific cost objects. B. assigning all fixed costs incurred to the appropriate products, services, departments, jobs, or divisions. C. selecting a cost object for which cost information is needed. D. analyzing the activities that cause cost pools to increase. E. assigning indirect costs.

Which one of the following is NOT a reason that indirect costs are allocated?   Companies should strive to reduce frivolous use of resources, not increase

A. To provide information for decision making     B. To increase frivolous use of common resources     C. To encourage evaluation of internally provided services     D. To calculate product cost for externally reporting

Which one of the following would most likely be allocated to products using ABC by a Subway Sandwich shop?

A. Cost of slicing sandwich meat B. Cost of 20-pound cheese chunks C. Cost of plastic gloves worn by sandwich makers D. Costs of the paper in which the sandwich is wrapped Answers B and D are direct materials. Answer A is direct labor.

Why are some costs assigned instead of traced? Tracing costs is more accurate so it will not cause under or overcosting.

A. Managers are unable to estimate the amount that will be incurred for some costs. B. It is not economically feasible to directly trace some costs. C. The company does not know the actual amount until year end. D. Tracing tends to undercost some products.

Which of the following would be the most equitable method of allocating employee meals provided by a company? Answer C does not consider the amount of food used or consumed by each employee.

A. Number of employees in a department B. Number of meals eaten by employees in all departments C. Ounces of food consumed by the employees compared to the ounces of food purchased D. Number of Katy Perry concerts attened by each employee

Which one of the following is the most appropriate cost driver for the ordering and receiving materials cost pool?  

A. number of receiving clerks     B. number of sales invoices     C. number of parts ordered     D. number of purchases orders

Which statement comparing ABC and traditional systems is true? A. ABC systems are more expensive than traditional systems.
B. Traditional systems generally give more accurate product cost information than ABC.

C. ABC systems utilize fewer cost drivers than traditional systems. D. GAAP requires companies to use ABC for external reporting purposes. ABC is more accurate and has more cost drivers. GAAP allows either method of cost allocation

For what purpose is ABC used?

A. To allocate total product costs to cost pools B. To reduce overall manufacturing costs C. To allocate direct and indirect costs D. To identify labor inefficiencies E. To allocate indirect costs to cost objects Only indirect costs are allocated.

WDT Inc. determined the following unit product costs for its staplers:                     Activity based costing $22.00                     Traditional costing $25.40       What will likely result?

A. The overcosting may cause WDT to lose customers to competition. B. The undercosting may cause WDT to lose customers to competition. C. The overcosting may cause WDT to earn a smaller gross profit than desired. D. The undercosting may cause WDT to earn a smaller gross profit than desired

The use of too few cost pools A. results in a more expensive costing system. B. tends to distort product costs. C. defeats the whole purpose of the cost-benefit tradeoff.

D. does not address the primary cost objective of assigning costs based on those able to bear the costs. ABC has more pools which are designed with a cause and effect relationship, causing product costs to be more accurate.

Why might the ABC system provide different results than the traditional system?

Because ABC uses more cost drivers, it is more effective at allocating costs and provides more accurate costs. Traditional costing assumes each product uses the same proportionate share of resources.

Why might the ABC system provide different results than the traditional system? B. Because ABC generates a product cost that is less than competitors allowing selling prices to be set lower than if traditional was used

. A. Because there are often errors in the traditional cost allocations. C. Because the products do not all require the same proportionate shares of the support resources. D. Because most companies make more than one product

Within a statistical quality control process, it is determined that 12 items from each batch are to be inspected. This activity is a facility level cost.

False. This is most likely a batch cost.

The focus of activity based management is to increase the number of volume-related allocation bases.

False. ABM uses ABC information to reduce costs.

ABC is used to allocate both direct and indirect costs to products or services.

False. Only indirect costs are allocated. Direct costs are traced.

One major use of activity based management is managing quality.

A cost driver causes a cost pool to increase or decrease.

Which of the following is likely to be a cost allocation basis for janitorial costs?  

A. Number of products sold   B. Square footage     C. Customer satisfaction     D. Total revenue

Which cost-allocation criterion will most likely subsidize poor performers at the expense of the best performers?    

A. the fairness or equity criterion B. the benefits-received criterion C. the ability to bear costs criterion D. the cause-and-effect criterion

A challenge to using cost-benefit criteria for allocating costs is that

A. the costs of designing and implementing complex cost allocations are not readily apparent B. the benefits of making better-informed pricing decisions are difficult to measure C. cost systems are being simplified and fewer multiple cost-allocation bases are being used D. the costs of collecting and processing information keeps spiraling upward

When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work in process?

A. Direct labor hours     B. Direct labor dollars     C. Machine hours     D. Cost of materials used

When individual activities within a cost pool have a similar relationship with the cost driver, those costs are considered a homogeneous cost pool.

Cost allocation is a method of assigning costs to cost objects.

Homogeneous cost pools contain costs that are have a similar cause-and-effect or benefits-received relationship with the cost-allocation base.

Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

Using the fairness criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives.

. When using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases.

The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

Direct labor and direct materials are direct costs and are traced, not allocated, because identifying direct costs with a particular product is easy and more accurate because it assigns costs based on a direct cause and effect relationship.

Which of the following is considered to be a unit-level cost for Swim Zone? Unit-level resources are directly related to output, i.e., the more units produced the more the machines need to be maintained.

A) machine setups   B) machine maintenance     C) material handling     D) product engineering The usage of the machine causes additional maintenance costs to be needed. Costs of direct materials, direct labor, and production machine related costs are examples of unit-level activities.

Which of the following is considered to be a batch-level cost for Swim Zone?  

A) machine maintenance     B) factory rental work space     C) material handling     D) product engineering Moving the material between locations is performed for each batch of products

Which of the following is considered to be a product-level cost for Swim Zone?

A) machine maintenance     B) factory rental work space     C) material handling     D) product engineering Product-level costs are costs of an activity that are required or performed to support the production of a specific product or model.

Which of the following is considered to be a facility-level cost?

A) machine maintenance     B) factory rental work space     C) material handling     D) product engineering Facility-level resources are acquired to provide a general capacity to produce products and services.

6 business functions in value chain

R&D, design of product and processes, production, marketing, distribution, customer service

Briefly name and describe the four criteria used to guide cost-allocation decisions.

1. Cause and effect 2. Benefits received 3. Fairness or equity 4. Ability to bear

- managers identify the variables that cause resources to be consumed

managers identify the beneficiaries of the outputs of the cost object.

establishing a selling price that is deemed fair by contracting parties.

- advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it

Which statement is true of allocation of support department costs?

    A. Its objective is to assign costs to departments that provide services internal to the organization.       B. It often reduces the total support department costs for a company.       C. It is often used for motivating employees.       D. All of the above are true

Which method recognizes partial interactions between support departments?  

A. the direct method       B. the step-down method       C. the reciprocal method       D. the allocation method

Which of the following departments is a support department for a boat manufacturing company?    

A. Personnel       B. Molding and assembly       C. Fabricating       D. Painting

Which of the following departments is a support department in a typical manufacturing company?       .

A. Assembly       B. Accounting       C. Cutting       D. packaging     Assembly is a producing department, not a service department

Which of the following is a weakness of the direct method of service cost allocations?

A. Computations are more complex than the reciprocal method.     B. All interdepartmental services are ignored.     C. It allocates excessive costs to cost objects.     D. The order of service department allocation has to be determined.

The direct allocation method allows for no recognition of services rendered by support departments to other support departments.

True. The direct allocation method allows for no recognition of services rendered by support departments to other support departments.

. The direct method allocates each support department's costs to operating departments only. .

The direct allocation method incorporates mutual services provided among all support departments.

False. The reciprocal allocation method incorporates mutual services provided among all support departments.

A. Briefly state why the reciprocal method is the ‘best’ method to allocate support costs.

It considers the use of services provided to and from all service departments.

Which of the following is a method of allocation used to assign service department costs to production departments but not to other service departments?

Under which of the following methods of cost allocation is there no distinction between fixed and variable costs?

Which of the following is a potential disadvantage of variable costing relative to full costing?

Which of the following is to be treated as a product cost?