Chapter 7

Question 1

A means of dividing a pool of costs (common costs) and assigning those costs to various subunits

Answer 1

Allocation

Question 2

Is neither reduced or increased by allocation, but the amounts assigned to the subunits CAN be affected by the allocation procedure chosen

Answer 2

Total Cost

Question 3

Units within an organization that are directly responsible for creating the products and services sold to customer

Answer 3

Producing Departments

Question 4

Units within an organization that provide essential support services for producing departments

Answer 4

Support Departments

Question 5

Cutting, assembly, finishing (manufacturing examples) auditing, tax and management advisory (service example)

Answer 5

Producing Departments

Question 6

Variable and fixed costs are allocated from support departments to producing departments using a single rate

Answer 6

When using a Single Charging rate

Question 7

the company determines at the beginning of the year what the variable cost per unit of service should be

Answer 7

when using a Dual Charging Rate

Question 8

Allocated by multiplying the budgeted rate by the usage

Answer 8

Variable Support Costs

Question 9

Allocation Ratio

Answer 9

Production Department Capacity/Total Capacity

Question 10

Allocation

Answer 10

Allocation Ratio x Budgeted fixed support service costs

Question 11

assumed no interaction between the support departments

Answer 11

direct method

Question 12

Recognizes that interactions among the support departments do occur but assumes that they occur in a sequential manner

Answer 12

Sequential (or STEP) method

Question 13

Provides the most complete approach to dealing with support department interactions

Answer 13

Reciprocal Method

Question 14

are two or more products produced simultaneously by the same process up to a “split off” point

Answer 14

Joint Products

Question 15

is the point at which the joint products become separate and identifiable

Answer 15

split off point

Question 16

easily traced to individual products and offer no particular problem

Answer 16

Separable Costs

Question 17

Joint costs are distributed to products on the basis of some physical measure

Answer 17

Physical Units Method

Question 18

Builds on the physical units method and assigns a weight factor

Answer 18

Weighted average method

Question 19

allocation is based on the products ability to absorb joint costs

Answer 19

Relative Market Vaue

Question 20

allocated joint cost based on each product’s proportionate share of market or sales value at the split off point

Answer 20

Value at split off Method

Question 21

can be used where this is no ready market for intermediate products

Answer 21

Net realizable value method

Question 22

joint costs are allocated so that the gross margin is the same for each product

Answer 22

Constant gross margin percentage method

Question 23

The primary purpose of by-product and joint cost accounting is to determine

Answer 23

income and inventory amounts for financial reporting purposes

Question 24

The distinction between joint products and by products rests solely on the relative important of their

Answer 24

sales value

Question 25

secondary product recovered in the course of manufacturing a primary product

Answer 25

By-Product

Question 26

there are good reasons to allocate costs but it gives management a great deal of discretion as to how to allocate that could change costs and therefore profits

Answer 26

Ethics