1. Cost allocation is the tracing and reassigning of costs to one or more cost objectives suchas departments, customers, or products. True2.Cost assignment is the tracing or allocating of costs to one or more cost objectives, such asactivities and departments. True3. A cost pool is a group of individual costs that is allocated to cost objectives using multiplecost drivers. False4.The contribution approach is a method of internal reporting that emphasizes the distinctionbetween variable and fixed costs for the purpose of better decision making.True5. Relevant information is the historical costs and revenues that differ because of alternative courses of actions. False6. Relevant information might have an element of difference among alternatives.False7. The absorption approach emphasizes the distribution between fixed and variable costs.False8. The contribution margin is computed using variable manufacturing costs, and variable selling and administrative costs.True9. Opportunity costs need to be considered when deciding on the use of limited resources.True10. Opportunity cost depends on alternatives available.True11. Opportunity costs and outlay costs are widely used synonyms.False12. Sunk cost is another term for historical cost or past cost.True1._____ is a method of approximating cost functions.a. Cost driver analysisb. Account analysisc.Product analysisd. Account analysis2.______ is the application of cost measures to expected future activity levels to forecast future costs.a.Activity analysisb. Cost predictionc.Measurement of cost behaviord. A cost function3. The process of identifying appropriate cost drivers and their effects on the costs of making a product or providing a service is called _____.a. cost predictionb. cost measurementc.activity analysisd. budgeting4. _____ is the process of reassigning cost to a cost object.a. Cost accumulationb. Cost accountingc. Cost allocationd. Cost application5. Where a specific product is the cost object, the hourly wages of assembly workers who work on only that product would be classified as a(n) _____.a.direct, variable costb. direct, fixed costc. indirect, variable costd. indirect, fixed cost6. Where a specific product is the cost object, the wages of a security guard w ould probably be classified as a(n) _____.a.direct, variable costb.direct, fixed costc. indirect, variable costd. indirect, fixed cost7.Where a specific product is the cost object, the materials used to manufacture the product would probably be classified as a(n) _____.a.direct, variable costb. direct, fixed costc. indirect, variable costd. indirect, fixed cost8. _____ is the predicted future costs and revenues that will differ among alternative courses of action.a.Relevant informationb.Sunk costs and revenuesc.Historical informationd. Predictable information9. In a special order decision, fixed costs that do not differ between two alternatives are _____.a. of major importance to the decisionb.considered opportunity costsc. important only if they are a material dollar amountd. irrelevant10._____ is the additional cost resulting from producing and selling one additional unit.a.Marginal costmon costc. Opportunity costd. Markup11. Price elasticity measures the _____.a. amount customers are willing to pay for a product or serviceb. effect of price changes on sales volumec. number of units a company is willing to selld.amount of competition in a given industry12. In perfect competition, the profit-maximizing volume is the quantity at which _____.a. marginal cost equals marginal revenueb.contribution margin equals fixed costc. marginal revenue equals priced.price exceeds marginal cost13. Sue is considering leav ing her current position to open a coffee shop. Sue’s current salary is $83,000. Annual coffee shop revenue and costs are estimated at $260,000 and $210,000, respectively. _____ is the opportunity cost of opening the coffee shop.a. $83,000b.$210,000c. $343,000d. $40,00014.Mary is considering leaving her current position to open an ice cream shop. Mary’s current salary is $77,000. Annual ice cream shop revenue and costs are estimated at $260,000 and $210,000, respectively. _____ is the opportunity cost of remaining employed.a. $77,000b.$210,000c.$287,000d.$50,000($260,000 - $210,000 = $50,000)15_____ costs will not continue if an ongoing operation is changed or deleted.a. Avoidableb. Commonc. Sunkd. Differential16. _____ costs are costs that continue even if an operation is halted.a. Commonb. Sunkc. Unavoidabled. Variable17.Manufacturing costs incurred after the split-off are known as _____costs.a. jointb.productc.split-offd. separable18. The _____ is the juncture in manufacturing where the joint products become individually identifiable.a.joint processing junctureb. split-off pointmon pointd.significant juncture19._____ costs are costs of manufacturing two or more products that are not separately identifiable as individual products until their split-off point.a. Separableb.Jointc. Incrementald.Sunk20. In absorption costing, costs are separated into the major categories of_____.a. manufacturing and nonmanufacturingb. manufacturing and fixedc. fixed and variabled. variable and nonmanufacturing21. _____ is (are) used for external reporting.a.Absorption costingb. Variable costingc. Direct costingd. Absorption costing and variable costing22. Absorption costing assigns _____ to the product.a. variable manufacturing costsb. all variable costsc. variable and fixed manufacturing costsd. all fixed and variable costs23. The production-volume variance is the difference between_____.a. applied fixed overhead and budgeted fixed overheadb. expected fixed overhead and actual fixed overheadc. expected fixed overhead and budgeted fixed overheadd. budgeted fixed overhead and actual fixed overhead1.Indicate whether each of the following costs is an Inventoriable cost (I) or a Period cost (P):______ 1. depreciation on factory equipment______ 2. depreciation on treasurer's desk______ 3. direct materials______ 4. factory supplies______ 5. indirect labor______ 6. factory equipment repairs and maintenance______ 7. office supplies______ 8. advertising expense______ 9. depreciation on office equipment______10. direct labor______11. factory supervisor's salary______12. factory utilities______13. indirect materials______14. office salaries______15. sales commissionsAnswer:__I__ 1. __I__ 6. __I__11.__P__ 2. __P__ 7. __I__12.__I__ 3. __P__ 8. __I__13.__I__ 4. __P__ 9. __P__14.__I__ 5. __I__10. __P__15.2.Timmerman Company has budgeted sales of $30,000 with the following budgeted costs:Direct materials $6,300Direct labor 4,100Factory overhead:Variable 3,700Fixed 5,600Selling and administrative expenses:Variable 2,400Fixed 3,200Compute the average target markup for setting prices as a percentage of:a. Total costsb. Total variable costsc. Variable manufacturing costsd. Total manufacturing costsAnswer:a. $6,300 + $4,100 + $3,700 + $5,600 + $2,400 + $3,200 = $25,300($30,000 - $25,300) / $25,300 = 19%b. $6,300 + $4,100 + $3,700 + $2,400 = $16,500($30,000 - $16,500) / $16,500 = 82%c. $6,300 + $4,100 + $3,700 = $14,100($30,000 - $14,100) / $14,100 = 113%d. $6,300 + $4,100 + $3,700 + $5,600 = $19,700($30,000 - $19,700) / $19,700 = 52%3. Orange Industries has budgeted sales of $49,500 with the following budgeted costs:Direct materials $15,000Direct labor 5,000Factory overhead:Variable 6,000Fixed 7,000Selling and administrative expenses:Variable 4,500Fixed 6,000Compute the average target markup for setting prices as a percentage of:a. Total manufacturing costsb. Total variable costsc. Total costsd. Variable manufacturing costsAnswer:a. $15,000 + $5,000 + $6,000 + $7,000 = $33,000($49,500 - $33,000) / $33,000 = 50%b. $15,000 + $5,000 + $6,000 + $4,500 = $30,500($49,500 - $30,500) / $30,500 = 62%c. $15,000 + $5,000 + $6,000 + $7,000 + $4,500 + $6,000 = $43,500($49,500 - $43,500) / $43,500 = 14%d. $15,000 + $5,000 + $6,000 = $26,000($49,500 - $26,000) / $26,000 = 90%4. Gwynn Company is considering the replacement of a machine that is presently used to produce its single product.The following data are available:Old ReplacementEquipment EquipmentOriginal cost $210,000 $40,000Useful life in years 12 7Current age in years 5 0Book value $65,000 -Disposal value now $30,000 -Disposal value in 7 years 0 0Annual cash operating costs $10,000 $9,000Required:Ignoring income taxes, prepare a cost comparison of all relevant items for the next seven years together. Indicate the best alternative for Gwynn Company.Answer:Keep Replace DifferenceCash operating costs $70,000 $63,000 $7,000Disposal value of old machine - (30,000) 30,000New machine, acquisition cost - 40,000 (40,000)Total relevant costs $70,000 $73,000 $(3,000)The cumulative effect over the seven years is $3,000 in favor of keeping the old machine.5. The Hawkeye Corporation is contemplating the replacement of some old equipment. The pertinent information is asfollows:Old ReplacementEquipment EquipmentOriginal cost $93,000 $60,000Useful life in years 13 6Current age in years 7 0Book value $57,000 -Disposal value now $45,000 -Disposal value in 6 years 0 0Annual cash operating costs $15,000 $11,000Required:Prepare a cost comparison of all relevant items for the next six years together. Ignore income taxes.Comment on the best alternative for Hawkeye Corporation.Answer:Keep Replace DifferenceCash operating costs $90,000 $66,000 $24,000Disposal value of oldequipment - (45,000) 45,000New equipment,acquisition cost -__ 60,000 (60,000)Total relevant costs $90,000 $81,000 $9,000The $9,000 cumulative effect over the six years favors replacing the old equipment.。
