Chapter 14 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis
Objective 14.1
1) Costs which are NOT economically feasible to trace but which are related to a cost object are known
as:
A) fixed costs
B) direct costs
C) indirect costs
D) variable costs
Answer: C
Diff: 1
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
2) Any item for which a separate measurement of cost is desired is known as:
A) cost allocation
B) a cost object
C) a direct cost
D) an indirect cost
Answer: B
Diff: 1
Terms: cost object
Objective: 1
AACSB: Reflective thinking
3) Indirect costs:
A) often comprise a large percentage of overall costs assigned to a cost object
B) specifically exclude marketing costs
C) cannot be used for external reporting
D) are treated as period costs and not as product costs
Answer: A
Diff: 3
Terms: indirect costs
Objective: 1
AACSB: Reflective thinking
4) All of the following illustrate purposes for allocating costs to cost objects EXCEPT to:
A) provide information for economic decisions
B) motivate managers and employees
C) determine a selling price the market will bear
D) measure income and assets for reporting to external parties
Answer: C
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,5) Which of the following illustrates a purpose for allocating costs to cost objects?
A) to motivate managers and employees
B) to provide information to customers
C) to determine a selling price the market will bear
D) to measure liabilities
Answer: A
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
6) The costs of all six value-chain functions should be included when determining:
A) whether to add a new product line
B) the selling price of a service
C) whether to make or buy a component part from another manufacturer
D) All of these answers are correct.
Answer: D
Diff: 3
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
7) R&D costs are used for which purpose of cost allocation?
A) to provide information for economic decisions
B) to report to external parties when using generally accepted accounting principles
C) to calculate costs of a government contract
D) All of these answers are correct.
Answer: A
Diff: 3
Terms: cost allocation
Objective: 1
AACSB: Communication
8) Which purpose of cost allocation is used to encourage sales representatives to push high-margin
products or services?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: B
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
2
Copyright © 2012 Pearson Education, Inc.
,9) Which purpose of cost allocation is used to decide on the selling price for a customized product or
service?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: A
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
10) Which purpose of cost allocation is used to cost products at a "fair" price?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: C
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
11) Which purpose of cost allocation is used to cost inventories for reporting to tax authorities?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: D
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
12) Indirect costs are costs that CANNOT be traced to cost objects in an economically feasible way.
Answer: TRUE
Diff: 1
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
13) To motivate engineers to design simpler products, costs for production, distribution, and customer
service may be included in product-cost estimates.
Answer: TRUE
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
3
Copyright © 2012 Pearson Education, Inc.
, 14) One of the purposes of allocating direct costs is to justify costs or compute reimbursement amounts.
Answer: TRUE
Explanation: One of the purposes of allocating indirect costs is to justify costs or compute
reimbursement amounts.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
15) For external reporting, inventoriable costs under GAAP sometimes include R&D costs.
Answer: FALSE
Explanation: Under GAAP, inventoriable costs include only the costs of producing and sometimes the
design costs of the product.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
16) To allocate a cost, it is only necessary to satisfy one of the purposes for which costs are allocated.
Answer: TRUE
Explanation: To allocate a cost, it is only necessary to satisfy one of the purposes for which costs are
allocated.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
Objective 14.1
1) Costs which are NOT economically feasible to trace but which are related to a cost object are known
as:
A) fixed costs
B) direct costs
C) indirect costs
D) variable costs
Answer: C
Diff: 1
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
2) Any item for which a separate measurement of cost is desired is known as:
A) cost allocation
B) a cost object
C) a direct cost
D) an indirect cost
Answer: B
Diff: 1
Terms: cost object
Objective: 1
AACSB: Reflective thinking
3) Indirect costs:
A) often comprise a large percentage of overall costs assigned to a cost object
B) specifically exclude marketing costs
C) cannot be used for external reporting
D) are treated as period costs and not as product costs
Answer: A
Diff: 3
Terms: indirect costs
Objective: 1
AACSB: Reflective thinking
4) All of the following illustrate purposes for allocating costs to cost objects EXCEPT to:
A) provide information for economic decisions
B) motivate managers and employees
C) determine a selling price the market will bear
D) measure income and assets for reporting to external parties
Answer: C
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,5) Which of the following illustrates a purpose for allocating costs to cost objects?
A) to motivate managers and employees
B) to provide information to customers
C) to determine a selling price the market will bear
D) to measure liabilities
Answer: A
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
6) The costs of all six value-chain functions should be included when determining:
A) whether to add a new product line
B) the selling price of a service
C) whether to make or buy a component part from another manufacturer
D) All of these answers are correct.
Answer: D
Diff: 3
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
7) R&D costs are used for which purpose of cost allocation?
A) to provide information for economic decisions
B) to report to external parties when using generally accepted accounting principles
C) to calculate costs of a government contract
D) All of these answers are correct.
Answer: A
Diff: 3
Terms: cost allocation
Objective: 1
AACSB: Communication
8) Which purpose of cost allocation is used to encourage sales representatives to push high-margin
products or services?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: B
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
2
Copyright © 2012 Pearson Education, Inc.
,9) Which purpose of cost allocation is used to decide on the selling price for a customized product or
service?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: A
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
10) Which purpose of cost allocation is used to cost products at a "fair" price?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: C
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
11) Which purpose of cost allocation is used to cost inventories for reporting to tax authorities?
A) to provide information for economic decisions
B) to motivate managers and other employees
C) to justify costs or compute reimbursement
D) to measure income and assets for reporting to external parties
Answer: D
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
12) Indirect costs are costs that CANNOT be traced to cost objects in an economically feasible way.
Answer: TRUE
Diff: 1
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
13) To motivate engineers to design simpler products, costs for production, distribution, and customer
service may be included in product-cost estimates.
Answer: TRUE
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
3
Copyright © 2012 Pearson Education, Inc.
, 14) One of the purposes of allocating direct costs is to justify costs or compute reimbursement amounts.
Answer: TRUE
Explanation: One of the purposes of allocating indirect costs is to justify costs or compute
reimbursement amounts.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
15) For external reporting, inventoriable costs under GAAP sometimes include R&D costs.
Answer: FALSE
Explanation: Under GAAP, inventoriable costs include only the costs of producing and sometimes the
design costs of the product.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
16) To allocate a cost, it is only necessary to satisfy one of the purposes for which costs are allocated.
Answer: TRUE
Explanation: To allocate a cost, it is only necessary to satisfy one of the purposes for which costs are
allocated.
Diff: 2
Terms: cost allocation
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
