Ch 4 MC

Question 1

What is cost assignment?
a) Assigning direct costs only
b) Assigning both direct and indirect costs to a cost object
c) Assigning only indirect costs

Answer 1

b) Assigning both direct and indirect costs to a cost object

Question 2

What is cost tracing?
a) Assigning indirect costs
b) Assigning direct costs
c) Allocating costs to a cost pool

Answer 2

b) Assigning direct costs

Question 3

What is a cost pool?
a) A group of direct costs assigned to a product
b) A group of indirect costs grouped together to simplify allocation
c) A method of allocating costs to cost objects

Answer 3

b) A group of indirect costs grouped together to simplify allocation

Question 4

Which of the following is an example of a cost-allocation base?
a) Direct labor costs
b) Machine hours used in production
c) Administrative costs

Answer 4

a) Direct labor costs
b) Machine hours used in production
c) Administrative costs

Question 5

In a job-costing system, which of the following is considered the cost object?
a) A unit of production
b) A service, like a repair job
c) Both a and b

Answer 5

c) Both a and b

Question 6

What is the formula for average unit cost?
a) Total units produced / Total cost
b) Total cost / Total units produced
c) Total fixed cost / Total units produced

Answer 6

b) Total cost / Total units produced

Question 7

What is the predetermined overhead rate formula?
a) Actual overhead costs / Actual allocation base activity
b) Budgeted total manufacturing overhead / Budgeted total allocation base
c) Total cost of a job / Total units produced

Answer 7

b) Budgeted total manufacturing overhead / Budgeted total allocation base

Question 8

Which of the following is true regarding the two overhead accounts?
a) The Manufacturing Overhead Control account tracks actual overhead costs, and the Manufacturing Overhead Allocated account tracks estimated overhead applied to production.
b) The Manufacturing Overhead Allocated account tracks actual overhead costs, and the Manufacturing Overhead Control account tracks estimated overhead.
c) Both accounts track actual overhead costs.

Answer 8

a) The Manufacturing Overhead Control account tracks actual overhead costs, and the Manufacturing Overhead Allocated account tracks estimated overhead applied to production.

Question 9

What does it mean if overhead is underallocated?
a) Actual overhead costs are less than the allocated overhead.
b) Actual overhead costs are more than the allocated overhead.
c) Actual overhead costs equal the allocated overhead

Answer 9

b) Actual overhead costs are more than the allocated overhead.

Question 10

Which of the following is a method for adjusting over/underapplied overhead?
a) Recalculating the actual allocation rate
b) Using the adjusted allocation rate approach
c) Both a and b

Answer 10

c) Both a and b

Question 11

When choosing a method for adjusting overhead at the end of the period, which factor is most important?
a) Industry practice
b) Consistency and materiality
c) Both b and a

Answer 11

c) Both b and a

Question 12

Which of the following best describes the process of “cost allocation” in a costing system?
a) Assigning both direct and indirect costs to a cost object based on their usage
b) Assigning indirect costs to a cost object using a systematic method like a cost-allocation base
c) Directly tracing costs to a product or service without any allocation method
d) Grouping direct costs into cost pools for easier allocation

Answer 12

b) Assigning indirect costs to a cost object using a systematic method like a cost-allocation base

Question 13

A company uses machine hours as its cost-allocation base for overhead. If the actual machine hours used for a job were higher than the estimated machine hours used to allocate overhead, what would be the likely result at the end of the period?
a) The company will have underallocated overhead.
b) The company will have overallocated overhead.
c) The company’s costs will be perfectly balanced.
d) There will be no impact on the allocation of overhead.

Answer 13

a) The company will have underallocated overhead.

Question 14

Which of the following is a correct sequence for calculating job costs using a job-costing system?
a) Identify direct costs, then allocate indirect costs, and finally calculate the total job cost
b) Identify indirect costs, allocate them first, then calculate direct costs, and finally compute the total job cost
c) Identify the job as the cost object, then trace both direct and indirect costs, and compute the job’s total cost
d) Allocate indirect costs based on direct labor costs, then compute the direct costs, and finish by summing up total costs

Answer 14

c) Identify the job as the cost object, then trace both direct and indirect costs, and compute the job’s total cost

Question 15

Under normal costing, how does a company allocate indirect manufacturing costs throughout the year?
a) Based on actual overhead costs incurred at the end of the period
b) Using a predetermined (budgeted) overhead rate applied to a cost-allocation base, such as machine hours or labor hours
c) Using historical overhead data from the previous year to allocate costs
d) By applying a fixed overhead rate that remains unchanged during the year

Answer 15

b) Using a predetermined (budgeted) overhead rate applied to a cost-allocation base, such as machine hours or labor hours

Question 16

In a job-costing system, a company allocates indirect costs to a job using a predetermined overhead rate. If the actual overhead costs incurred during the period were significantly higher than the allocated costs, which of the following is true?
a) The company has overallocated overhead.
b) The company has underallocated overhead.
c) The company will need to recalculate the predetermined overhead rate.
d) The company must adjust the cost of goods sold immediately.

Answer 16

b) The company has underallocated overhead.

Question 17

Which of the following is true about the three methods for adjusting over/underallocated overhead at the end of the period?
a) The Write-Off Approach allocates the entire variance to Cost of Goods Sold, simplifying adjustments but may distort financial reporting.
b) The Proration Approach allocates the overhead variance between Work-in-Process, Finished Goods, and Cost of Goods Sold based on their relative balances.
c) The Adjusted Allocation Rate Approach recalculates overhead allocations for the entire period based on the actual overhead rate.
d) All of the above methods are equally appropriate for all companies, regardless of materiality or consistency factors.

Answer 17

d) All of the above methods are equally appropriate for all companies, regardless of materiality or consistency factors.
(Note: While in practice, companies must choose a method based on materiality and consistency, the answer is technically correct regarding the methods themselves).

Question 18

When using a cost pool in a costing system, how should a company decide which indirect costs to group together?
a) Indirect costs should always be grouped based on the highest amount of expense to make the allocation more accurate.
b) Indirect costs should be grouped according to their natural relationship and how they relate to a specific cost-allocation base (e.g., labor, machine hours).
c) Indirect costs should be grouped according to their cost type (e.g., fixed vs. variable).
d) Indirect costs should be grouped randomly, with no specific pattern or rule.

Answer 18

b) Indirect costs should be grouped according to their natural relationship and how they relate to a specific cost-allocation base (e.g., labor, machine hours).

Question 19

What would be the impact of using an incorrect cost-allocation base on the accuracy of job costing?
a) It could lead to a significant over- or underestimation of indirect costs allocated to a job, resulting in inaccurate job cost estimates.
b) It would have no effect on job costing, as cost-allocation bases are only used for internal purposes.
c) It would only affect the calculation of direct costs, not indirect costs.
d) It would cause the predetermined overhead rate to be calculated incorrectly but would not affect the total cost of the job.

Answer 19

a) It could lead to a significant over- or underestimation of indirect costs allocated to a job, resulting in inaccurate job cost estimates.

Question 20

In a process costing system, how is the total cost per unit of an identical service or product calculated?
a) By dividing the total direct costs by the total number of units produced
b) By adding all direct and indirect costs and dividing by the number of units produced
c) By allocating indirect costs based on a predetermined rate and dividing by the total number of units
d) By subtracting the average direct costs from the total cost and dividing by the number of units produced

Answer 20

b) By adding all direct and indirect costs and dividing by the number of units produced

Question 21

In a job-costing system, when calculating the total cost of a job, which costs are included in the final total?
a) Only direct labor costs
b) Only direct materials costs
c) Both direct and indirect costs allocated to the job
d) Both direct costs and the indirect costs that were directly traced to the job

Answer 21

d) Both direct costs and the indirect costs that were directly traced to the job