1. Chem Manufacturing Company processes direct materials up to the splitoff point, where two
products (X and Y) are obtained and sold. The following information was collected for the month
of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
Sales:
X 5,000 litres
Y 4,500 litres
X 4,750 at $150 per litre Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the splitoff point to yield
a total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
What are the respective physical volume proportions for products X and Y?
a.
36.36 % and 63.64%
b.
55.00% and 45.00%
c.
54.00% and 46.00%
d.
47.37% and 53.63%
e.
52.63% and 47.37%
2. Argon Manufacturing Company processes direct materials up to the splitoff point where two
products (U and V) are obtained and sold. The following information was collected for last
quarter of the calendar year:
Direct materials
processed:
20,000 gallons (20,000 gallons yield 19,000 gallons of good product and
1,000 gallons of shrinkage)
Production:
U
10,000 gallons
V9,000 gallons
Sales:
U
9,500 at $150 per gallon
V8,000 at $100 per gallon
The cost of purchasing 20,000 gallons of direct materials and processing it up to the splitoff point to
yield a total of 19,000 gallons of good products was $1,950,000.
Beginning inventories totaled 100 gallons for U and 50 gallons for V. Ending inventory amounts
reflected 600 gallons of Product U and 1,050 gallons of Product V. October costs per unit were the same
as November.
What are the physical-volume proportions for products U and V, respectively?
a.
47.37% and 53.63%
b.
46.00% and 54.00%
c.
54.00% and 46.00%
d.
55.00% and 45.00%
e.
52.63% and 47.37%
3. Data Source Media manufactures cassettes and CDs in separate divisions utilizing one plant
location. The following data have been prepared for review.
Fixed operation costs
Practical capacity
Budgeted usage:
Cassette Division
CD Division
Budgeted variable cost per hour
$550,000
1,250 hours
1,000 hours
175 hours
$600 per hour
What is the total cost per hour of use for the Cassette Division assuming budgeted usage is the allocation
base and a single-rate method is used?
a.
$1,050.00
b.
$600.00
c.
$360.00
d.
$382.98
e.
$1068.09
4. Which method allocates joint costs on the basis of each product's relative sales value at the
splitoff point?
a.
the estimated net realizable value method
b.
the constant gross margin percentage NRV method
c.
the physical measure method
d.
the sales value at splitoff method
e.
the splitoff method
5. Resource consumption accounting (RCA) employs an allocation procedure akin to a dual-rate
system. For each cost/resource pool, cost assignment rates
a.
for fixed costs are based on practical capacity supplied, while rates for variable costs are based on actual
quantities.
b.
for fixed and variable costs are based on actual output quantities.
c.
for fixed costs are based on practical capacity supplied, while rates for variable costs are based on
budgeted quantities.
d.
for fixed and variable costs are based on budgeted quantities.
e.
for fixed costs are based on actual quantity, while rates for variable costs are based on budgeted
quantities.
6. Two finished products, [A & B], are sold for $16 a unit and $24 a unit, respectively. Each product
can also be sold at the splitoff point. Product A can be sold for $10 and Product B for $8. Joint
costs for the two products totalled $8,000 for January for 600 units of A and 500 units of B.
What are the respective joint costs assigned to each unit of products A and B if the sales value at
splitoff method is used?
a.
$6.40 and $14.40
b.
$8.00 and $9.10
c.
$8.00 and $6.40
d.
$5.92 and $8.88
e.
$6.40 and $9.10
7. Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000
litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process
yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound
known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both
products may be processed further. Jarlon may be processed into Jaxton at an incremental cost
of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional
cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and
3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling
price of Kraxton is $102 per jar.
Assuming Cranbrook uses the sales value at splitoff method and 2,000 containers of Jarlon and
75 containers of Kharton are unsold at the end of the period, Cranbrook would report ending
inventory of
a.
$56,598.
b.
$79,240.
c.
$38,272.
d.
$58,100.
e.
$53,560.
8. Under the incremental method of allocating common costs
a.
fairness and equity are emphasized.
b.
no ranking of users is required.
c.
there is a disincentive to be titled the primary user.
d.
the parties are interested in being viewed as primary users.
e.
each party bears a proportionate share of the total costs in relation to their individual stand-alone costs.
9. The Mississauga Corporation has a central copying facility. The copying facility has only two
users, the Marketing Department and the Operations Department. The following data apply to
the coming budget year:
Budgeted costs of operating the copying facility
for 200,000 to 300,000 copies:
Fixed costs per year
Variable costs
Budgeted long-run usage in copies per year:
Marketing Department
Operations Department
$30,000
3 cents (.03) per copy
60,000 copies
190,000 copies
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 40,000 copies and by the Operations
Department was 180,000 copies.
If a dual-rate cost allocation method is used, what amount of copying facility costs will be budgeted for
the Operations Department?
a.
$24,600
b.
$30,245
c.
$28,500
d.
$29,945
e.
$28,200
10. Infinity Warehouse Fitness Equipment incurred $80,000 of common fixed costs and $120,000 of
common variable costs. Data are provided below for the capacity allowed and the capacity used.
Department
Barbell Department
Sauna Department
Capacity
Available in Hours
500
300
Capacity
Used in Hours
400
400
For both departments, common fixed costs are to be allocated on the basis of capacity available and
common variable costs are to be allocated on the basis of capacity used.
The fixed and variable costs allocated to the Sauna Department are ________.
a.
$30,000 and $75,000, respectively
b.
$30,000 and $60,000, respectively
c.
$50,000 and $60,000, respectively
d.
$30,000 and $50,000, respectively
e.
$50,000 and $75,000, respectively
11. All of the following methods may be used to allocate joint costs EXCEPT the
a.
estimated net realizable value method.
b.
sales value at splitoff method.
c.
physical measure method.
d.
constant gross margin percentage NRV method.
e.
present value allocation method.
12. If joint products end up with the same gross margin percentage, which of the following is TRUE?
a.
The gross margin percentage NRV method must have been used.
b.
The physical measure method must have been used.
c.
The cost allocation method assigned the same cost per unit to each product.
d.
If all products are sold at the splitoff point, and there were no opening inventories, the sales value at
splitoff method could have been used.
e.
The estimated net realizable method must have been used.
13. The Arvid Corporation manufactures widgets, gizmos, and turnbols from a joint process. May
production is 4,000 widgets; 7,000 gizmos; and 8,000 turnbols. Respective per unit selling
prices at splitoff are $15, $10, and $5. Joint costs up to the splitoff point are $75,000. If joint
costs are allocated based upon the sales value at splitoff, what amount of joint costs will be
allocated to the widgets?
a.
$26,471
b.
$28,125
c.
$60,000
d.
$30,882
e.
$17,647
14. Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000
litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process
yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound
known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both
products may be processed further. Jarlon may be processed into Jaxton at an incremental cost
of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional
cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and
3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling
price of Kraxton is $102 per jar.
Using the physical measures method, the weightings for joint cost allocations for Jarlon and
Kharton respectively are
a.
27.62% and 72.38%.
b.
39.58% and 60.42%.
c.
80.00% and 20.00%.
d.
72.38% and 27.62%.
e.
60.42% and 39.58%.
15. A business which enters into a contract to purchase a product (or products) and will
compensate the manufacturer under a cost reimbursement formula, should take an active part
in the determination of how joint costs are allocated because
a.
sales discounts often depend on joint cost allocation amounts.
b.
the ASPE/IFRS requires the business to participate in the cost allocation process.
c.
they are used in the calculation of the suppliers inventoriable costs.
d.
if the manufacturer successfully allocates a large portion of its costs to these products then it will be able
to sell its other nonreimbursed products at lower prices.
e.
it is important in the understanding of the cause-and-effect relationship.
16. 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
$80 per technician
Variable costs
hour
Budgeted long-run usage in hours per year:
9,000 technician
Large Plane Department
hours
7,000 technician
Small Plane Department
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 allocated to the Large Plane Department? Assume budgeted usage is used to allocate fixed materials
laboratory costs and actual usage is used to allocate variable materials laboratory costs.
a.
$996,923
b.
$817,500
c.
$822,500
d.
$782,500
e.
$705,000
17. The belief that a corporate division with higher sales ought to be allocated more of the
company's advertising costs because it must have derived more benefit from the expenditures
than a division with lower sales, is an example of which criteria for cost allocation decisions?
a.
benefits expended
b.
causality
c.
benefit received
d.
fairness and equity
e.
ability to bear
18. Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance
Department costs of $80,000 are allocated on the basis of standard service hours used. The
Personnel Department costs of $20,000 are allocated based on the number of employees. Costs
of Departments A and B are $40,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
Maintenance
Dept.
Standard service hours used 200
Number of employees
10
Personnel
Dept.
200
20
Production
Dept. A
240
40
Production
Dept. B
160
120
How much of the cost of the Maintenance Department is allocated to Department B using the direct
method?
a.
$24,000
b.
$32,000
c.
$60,000
d.
$12,800
e.
$16,000
19. Two entities, Alpha Company and Beta Company, share a common warehouse facility. Total
costs for the facility are budgeted at $2,000,000. Accountants have estimated that if Alpha
Company did not use the facility, the cost incurred would be reduced by 30 percent. What
amount of the budgeted cost should be allocated, respectively, to Alpha and Beta if the
incremental allocation method is used? Assume that Beta is the primary party.
a.
$0; $1,400,000
b.
$0; $2,000,000
c.
$1,400,000; $600,000
d.
$700,000; $1,300,000
e.
$600,000; $1,400,000
20. Betty's Book and Music Store has two service departments, Warehouse and Data Centre.
Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehousehours. Data Centre Department costs of $75,000 are allocated based on the number of computer
log-on hours. The costs of operating departments Music and Books are $125,000 and $150,000,
respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as
follows:
Production
Budgeted costs
Budgeted warehousehours
Number of computer
hours
Support
Departments
Departments
Warehouse Data Centre
Music Books
Department Department
$175,000
$75,000 $125,000 $150,000
NA
250
500
750
100
NA
400
50
Using the step-down method, what amount of Data Centre Department cost will be allocated to the
Warehouse Department if the service department with the highest percentage of interdepartmental
support service is allocated first? (Round up)
a.
$7,500
b.
$0
c.
$25,000
d.
$75,000
e.
$17,500
21. The method that allocates costs in each cost pool using the same rate per unit is known as the
a.
dual-rate cost allocation method.
b.
incremental cost allocation method.
c.
reciprocal cost allocation method.
d.
homogeneous cost allocation method.
e.
single-rate cost allocation method.
22. Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance
Department costs of $80,000 are allocated on the basis of standard service hours used. The
Personnel Department costs of $20,000 are allocated based on the number of employees. Costs
of Departments A and B are $40,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
Maintenance
Dept.
Standard service hours used 200
Number of employees
10
Personnel
Dept.
200
20
Production
Dept. A
240
40
Production
Dept. B
160
120
What is the cost of the support departments allocated to Department B using the step-down method if
the support department with the highest percentage of interdepartmental service to the other support
department is allocated first?
a.
$43,660
b.
$46,588
c.
$53,412
d.
$21,333
e.
$ 56,313
23. Chem Manufacturing Company processes direct materials up to the splitoff point, where two
products (X and Y) are obtained and sold. The following information was collected for the month
of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
Sales:
X 5,000 litres
Y 4,500 litres
X 4,750 at $150 per litre Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the splitoff point to yield
a total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
What is the approximate portion of the joint costs that should be allocated to products X and Y,
respectively, using a physical volume measure?
a.
$513,142 and $461,858
b.
$487,500 and $487,500
c.
$530,000 and $470,000
d.
$529,285 and $445,715
e.
$461,858 and $513,142
24. The selection of a joint cost allocation method assists managers in which of the following
decisions?
a.
joint costs minimization
b.
adding or dropping a product line
c.
allocating inventoriable costs
d.
sell or process further
e.
total cost minimization
25. Cranbrook Chemical Ltd. manufactures two industrial compounds. In the month of May, 15,000
litres of direct material costing $160,000 were processed at a cost of $400,000. The joint process
yielded 16,000 containers of a compound known as Jarlon and 4,000 containers of a compound
known as Kharton. The respective selling prices of Jarlon and Kharton are $38 and $58. Both
products may be processed further. Jarlon may be processed into Jaxton at an incremental cost
of $8 per jar of the final product while Kharton may be processed into Kraxton at an additional
cost of $32 per jar of the final product. The volume of jars of the final product are: 12,000 and
3,000 for Jaxton and Kraxton respectively. The selling price of Jaxton is $48 per jar. The selling
price of Kraxton is $102 per jar.
Using the sales value at splitoff method, the joint costs allocated to Kharton would be
a.
$154,672.
b.
$405,328.
c.
$289,520.
d.
$110,480.
e.
$115,808.
S
26. The Charmatz Corporation has a central copying facility. The copying facility has only two users,
the Marketing Department and the Operations Department. The following data apply to the
coming budget year:
Budgeted costs of operating the copying facility
for 400,000 to 600,000 copies:
Fixed costs per year
Variable costs
$60,000
3 cents (.03) per copy
Budgeted long-run usage in copies per year:
Marketing Department
Operations Department
120,000 copies
380,000 copies
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations
Department was 360,000 copies.
If a single-rate cost allocation method is used, what amount of copying facility costs will be budgeted for
the Marketing Department?
a.
$16,800
b.
$18,000
c.
$3,600
d.
$14,400
27. The constant gross margin percentage NRV method of joint cost allocation
a.
involves allocating costs in such a way that maintaining the same gross margin percentage for each
product that was obtained in prior years.
b.
will result in different gross margins for each product.
c.
involves allocating costs in such a way that the overall gross margin percentage is identical for the
individual products.
d.
is the same as the sales value at splitoff method.
e.
is the same as the estimated NRV method.
28. Betty's Book and Music Store has two service departments, Warehouse and Data Centre.
Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehousehours. Data Centre Department costs of $75,000 are allocated based on the number of computer
log-on hours. The costs of operating departments Music and Books are $125,000 and $150,000,
respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as
follows:
Budgeted costs
Budgeted warehousehours
Number of computer
hours
Production
Support
Departments
Departments
Warehouse Data Centre
Music Books
Department Department
$175,000
$75,000 $125,000 $150,000
NA
250
500
750
100
NA
400
50
Using the direct method, what amount of Warehouse Department costs will be allocated to Department
Books?
a.
$105,000
b.
$75,000
c.
$30,000
d.
$70,000
e.
$87,500
29. Brittany Furniture manufactures two products, pillows and cushions, from a joint process.
Pillows are allocated $7,000 of the total joint costs of $25,000. There are 2,500 pillows produced
and 2,500 cushions produced each year. Pillows can be sold at the split-off point for $12 per
unit, or they can be processed further into a deluxe pillow for additional processing costs of
$8,000 and sold for $16 for each deluxe pillow. By how much will operating income change if the
company chooses to process deluxe pillows?
a.
$32,000 net increase in operating income
b.
$30,000 net increase in operating income
c.
$3,000 net decrease in operating income
d.
$23,000 net increase in operating income
e.
$2,000 net increase in operating income
30. A disadvantage of allocating fixed costs using a budgeted rate and actual usage is that
a.
supplying division managers may be tempted underestimate usage when budgeting unit costs.
b.
changes in one department's usage should not affect another department's allocation.
c.
some organizations offer rewards to managers who make accurate forecasts.
d.
the allocation would capture the cause-and-effect relationship.
e.
variation in usage will result in variances that need to be managed.
31. Which of the following is the first step in the cost-allocation decision process?
a.
Identify the relevant indirect costs included in the cost pool(s) or numerator(s).
b.
Identify the purpose of the cost allocation.
c.
Identify the direct inputs that are already measured.
d.
Analyze the alternatives and select the best one for the denominator.
e.
Calculate the cost-allocation rate for each indirect cost pool.
32. Orange Paper Company processes wood pulp into two products. During February the joint costs
of processing were $156,000. Production and sales value information for the month were as
follows:
Sales Value at
Product
Kilograms Produced splitoff Point Separable Costs
Paper
180,000
$30,000
$232,000
Cardboard
132,000
20,000
277,000
Paper sells for $2.85 a kilogram and cardboard sells for $3.90 a kilogram.
There were no beginning inventories for April but ending inventories totalled 15,000 kilograms for
paper and 18,000 kilograms for cardboard.
What will be the total incremental benefit or (loss) from all potential sales of processing the cardboard
beyond the splitoff point?
a.
$311,000
b.
$277,000
c.
$217,800
d.
$257,800
e.
$237,800
33. Chem Manufacturing Company processes direct materials up to the splitoff point, where two
products (X and Y) are obtained and sold. The following information was collected for the month
of November.
Direct materials processed:
10,000 litres (10,000 litres yield 9,500 litres of good product and 500 litres of shrinkage)
Production:
Sales:
X 5,000 litres
Y 4,500 litres
X 4,750 at $150 per litre Y 4,000 at $100 per litre
The cost of purchasing 10,000 litres of direct materials and processing it up to the splitoff point to yield
a total of 9,500 litres of good products was $975,000.
The beginning inventories totalled 50 litres for X and 25 litres for Y. Ending inventory amounts reflected
300 litres of product X and 525 litres of product Y. October costs were per unit were the same as
November.
What is the approximate amount of joint costs in Product Y's ending inventory if the physical volume
method is used and the company uses the FIFO inventory method?
a.
$60,145
b.
$60,285
c.
$53,883
d.
$50,917
e.
$67,358
34. Which of the following is NOT a reason underlying the importance of allocations for inventory
costing and cost of goods sold computations?
a.
Sell work-in -process or process further decisions prior to the splitoff point.
b.
The information may be required for insurance settlement or litigation.
c.
Inventory costing is essential for proper balance sheet presentation.
d.
Cost of goods sold is an important component in the determination of net income.
e.
Divisional profitability may affect compensation for divisional managers.
35. To discourage unnecessary use of a support department, management might
a.
allocate support department costs based upon user department usage.
b.
issue memos on useful services provided by the support department.
c.
allocate a fixed amount of support department costs to each department regardless of use.
d.
allocate only variable costs based on budgeted usage.
e.
not allocate any support department costs to user departments.
36. In rate regulation settings, which method is usually preferred over the sales value method?
a.
estimated net realizable method
b.
constant gross margin percentage NRV method
c.
sales value at splitoff method
d.
physical measure method
e.
rate regulation method
37. An advantage of the sales value at splitoff method is
a.
the fact that it can be supported subjectively.
b.
the fact that only a few assumptions are required beyond the splitoff point.
c.
the cost allocation base is well understood.
d.
it always yields the same results as the gross margin percentage method.
e.
the fact that there may not be a ready market at the splitoff point.
38. The step-down allocation method
a.
allocates complete reciprocated costs.
b.
recognizes the total amount of services that support departments provide to each other.
c.
allocates support department costs to production departments only.
d.
offers key input for outsourcing decisions.
e.
typically begins with the support department that provides the highest percentage of its total services to
other support departments.
39. General Media manufactures cassettes and CDs in separate divisions utilizing one plant location.
The following data have been prepared for review.
Fixed operation costs
Practical capacity
Budgeted usage:
Cassette Division
CD Division
Budgeted variable cost per hour
$950,000
2,500 hours
2,000 hours
350 hours
$400 per hour
What is the allocated cost to the two General Media divisions, respectively, if the single rate is $1,000?
Assume that the Cassette and CD Divisions used 1,750 and 200 hours, respectively.
a.
$1,750,000 and $200,000
b.
$900,000 and $200,000
c.
$2,800,000 and $320,000
d.
$807,692 rounded and $92,308 rounded
e.
$900,000 and $320,000
40. Which purpose of cost allocation is used to encourage sales representatives to push high-margin
products or services?
a.
to motivate managers and other employees
b.
to measure income and assets for reporting to external parties
c.
to justify costs
d.
to provide information for economic decisions
e.
to compute reimbursement