1. There is no "best" cost allocation system.
2. Eventually, all direct service department costs will become indirect production department costs.
3. Variable and fixed-service department costs should be allocated separately.
4. The direct method is generally better because it recognizes the effects of the most significant support provided by service departments to other service departments.
5. The traditional approach to cost allocation assumes that all costs are caused by a single cost driver.
6. ABC systems focus on accumulating costs into key activities, rather than into organizational units.
7. Two conventional ways of allocating joint costs to products are physical units and relative sales values.
8. In determining the budgeted overhead application rate, the actual amount of the cost driver is used as the numerator.
9. Total overhead applied is the result of multiplying the actual amount of the cost driver by the budgeted overhead rate.
10. There should be a strong cause-and-effect relationship between the factory overhead incurred and the cost driver chosen for its application.
11. No one cost driver is right for all situations.
12. When the amount of overhead applied to the product exceeds the amount incurred by the department, the difference is called overapplied overhead.
13. The variable-costing method does not include fixed overhead in a product's cost.
14. Absorption costing is more widely used than variable costing.
15. When actual volume is more than expected volume, fixed overhead is underapplied.
Multiple Choice -
16. The two key items in determining the budgeted factory-overhead rate are budgeted total overhead and _____.
a. actual volume of the cost driver
b. actual factory-overhead costs
c. budgeted total volume of the cost driver
d. estimated factory-overhead costs
17. The budgeted factory-overhead rate is computed as _____.
a. actual factory overhead / actual production in units
b. actual factory overhead / actual cost driver activity
c. budgeted total overhead / actual cost driver activity
d. budgeted total overhead / budgeted cost driver
18. The cost driver chosen for applying factory-overhead costs should be the cost driver that _____.
a. is easiest to understand
b. incurs the least administration cost
c. causes most of the overhead costs
d. confers a competitive advantage
19. A company that produces more than its planned volume for a year will _____.
a. underapply overhead
b. not have an overhead variance
c. overapply overhead
d. none of these answers is correct
20. The excess of actual overhead over the overhead applied to products is called _____.
a. overapplied overhead
b. underapplied overhead
c. overestimated overhead
d. prorated overhead
21. _____ is (are) expensed as a period cost under variable costing.
a. Fixed manufacturing overhead
b. Direct materials
c. Variable manufacturing overhead
d. Direct labor
22. _____ is (are) used for external reporting.
a. Absorption costing
b. Variable costing
c. Direct costing
d. Absorption costing and variable costing
23. Absorption costing assigns _____ to the product.
a. variable manufacturing costs
b. all variable costs
c. variable and fixed manufacturing costs
d. all fixed and variable costs
24. The primary difference between variable and absorption costing is the accounting for_____.
a. beginning inventory costs
b. fixed manufacturing overhead
c. selling and administrative costs
d. variable manufacturing overhead
25. _____ assigns both fixed and variable manufacturing costs to the product.
a. Direct costing
b. Variable costing
c. Absorption costing
d. Fixed costing
26. Cost allocation base refers to the _____.
a. cost driver
b. total costs to be allocated
c. total allocated costs
d. cost objectives
27. _____ is a cost objective.
d. All of these answers are correct
28. The use of budgeted service department cost rates protects using departments from _____.
a. service department efficiencies
b. price fluctuations
c. service outages
d. all of these answers are correct
29. The two methods for allocating interdepartmental service costs are the _____.
a. step-down and indirect
b. variable and fixed
c. step-up and variable
d. step-down and direct
30. The _____ method is a method for allocating service department costs that ignores other service department's costs when any given service department's costs are allocated to the revenue-producing departments.