ACC 222 EXAM 3 FINAL QUESTIONS & ANSWERS
The allocation rate is computed by:
a. Dividing the total costs in the cost pool by the total overhead costs
b. Dividing the total overhead costs by the total costs in the cost pool
c. Dividing the total costs in the cost pool by the denominator volume
d. Dividing the total overhead costs by the unit contribution margin e. Dividing the total
overhead costs by the profit margin - Answer -C
allocation rate = total OH Cost $ / Cost Driver
The allocation rate is calculated by dividing the total overhead costs to be allocated (i.e.,
the total overhead costs in the cost pool) by the total level of the cost driver (also known
as the denominator volume).
TRUE or FALSE? When making decisions, contribution margin is the appropriate
measure for short-term decisions and operating income is the appropriate measure for
long-term decisions. - Answer -True.
Contribution captures changes in variable costs and benefits, which change in the short
run. For long run decisions, operating income is the appropriate measure of profit to use
because it also captures changes in capacity costs (i.e., fixed costs).
TRUE or FALSE? Capacity costs are controllable in the short term. - Answer -False.
Capacity costs (i.e., fixed costs) are fixed in the short term but become controllable in
the long term.
Direct Estimation - Answer -an expert analyzes account by account, expected changes
in fixed costs based on need for new resources (capacity) at new activity level
Advantage of Direct Estimation - Answer -accurate because you're conducting a
detailed analysis, account by account
Disadvantage of Direct Estimation - Answer -time consuming and tedious
Cost Allocation - Answer -to distribute a common cost among two or more cost objects
Cost Allocation Steps - Answer -1. Calculate allocation rate (overhead rate) by dividing
TOTAL costs in the cost pool by the denominator volume (total cost driver)
2. Use allocation rate to allocate costs to cost object by multiplying allocation rate by
number of cost driver units the cost object uses
, Cycle Shop has two products, Standard and Deluxe, and uses direct labor cost to
allocate fixed costs. Product managers provide the following data about fixed costs and
production:
Total fixed costs to be allocated: $5,500,000
Standard: 28,000 units produced; $850,000 DL cost
Deluxe: 24,000 units produced; $1,150,000 DL cost
What is the allocation rate that should be used to allocate overhead to the Deluxe
product line? - Answer -Allocation rate = Total $ to be allocated/Total cost driver
=$5,500,000/($850k + $1.15M)
= *$2.75 per DL$*
Cycle Shop has two products, Standard and Deluxe, and uses direct labor cost to
allocate fixed costs. Product managers provide the following data about fixed costs and
production:
Total fixed costs to be allocated: $5,500,000
Standard: 28,000 units produced; $850,000 DL cost
Deluxe: 24,000 units produced; $1,150,000 DL cost
How much total overhead will be allocated to the Standard product line? - Answer -rate
= $2.75 per DL$
OH allocated = rate x DL cost
= $2.75 per DL$ x $850,000
=*$2,337,500*
____ is likely a better cost driver for non-manufacturing than direct labor dollars. -
Answer -units sold
Multiple Rates Steps - Answer -1. Calculate rate for each pool using DL$ as allocation
base for manufacturing costs and units sold as allocation base for non-manufacturing
costs
2. Use allocation rates to allocate overhead from each cost pool
The allocation rate is computed by:
a. Dividing the total costs in the cost pool by the total overhead costs
b. Dividing the total overhead costs by the total costs in the cost pool
c. Dividing the total costs in the cost pool by the denominator volume
d. Dividing the total overhead costs by the unit contribution margin e. Dividing the total
overhead costs by the profit margin - Answer -C
allocation rate = total OH Cost $ / Cost Driver
The allocation rate is calculated by dividing the total overhead costs to be allocated (i.e.,
the total overhead costs in the cost pool) by the total level of the cost driver (also known
as the denominator volume).
TRUE or FALSE? When making decisions, contribution margin is the appropriate
measure for short-term decisions and operating income is the appropriate measure for
long-term decisions. - Answer -True.
Contribution captures changes in variable costs and benefits, which change in the short
run. For long run decisions, operating income is the appropriate measure of profit to use
because it also captures changes in capacity costs (i.e., fixed costs).
TRUE or FALSE? Capacity costs are controllable in the short term. - Answer -False.
Capacity costs (i.e., fixed costs) are fixed in the short term but become controllable in
the long term.
Direct Estimation - Answer -an expert analyzes account by account, expected changes
in fixed costs based on need for new resources (capacity) at new activity level
Advantage of Direct Estimation - Answer -accurate because you're conducting a
detailed analysis, account by account
Disadvantage of Direct Estimation - Answer -time consuming and tedious
Cost Allocation - Answer -to distribute a common cost among two or more cost objects
Cost Allocation Steps - Answer -1. Calculate allocation rate (overhead rate) by dividing
TOTAL costs in the cost pool by the denominator volume (total cost driver)
2. Use allocation rate to allocate costs to cost object by multiplying allocation rate by
number of cost driver units the cost object uses
, Cycle Shop has two products, Standard and Deluxe, and uses direct labor cost to
allocate fixed costs. Product managers provide the following data about fixed costs and
production:
Total fixed costs to be allocated: $5,500,000
Standard: 28,000 units produced; $850,000 DL cost
Deluxe: 24,000 units produced; $1,150,000 DL cost
What is the allocation rate that should be used to allocate overhead to the Deluxe
product line? - Answer -Allocation rate = Total $ to be allocated/Total cost driver
=$5,500,000/($850k + $1.15M)
= *$2.75 per DL$*
Cycle Shop has two products, Standard and Deluxe, and uses direct labor cost to
allocate fixed costs. Product managers provide the following data about fixed costs and
production:
Total fixed costs to be allocated: $5,500,000
Standard: 28,000 units produced; $850,000 DL cost
Deluxe: 24,000 units produced; $1,150,000 DL cost
How much total overhead will be allocated to the Standard product line? - Answer -rate
= $2.75 per DL$
OH allocated = rate x DL cost
= $2.75 per DL$ x $850,000
=*$2,337,500*
____ is likely a better cost driver for non-manufacturing than direct labor dollars. -
Answer -units sold
Multiple Rates Steps - Answer -1. Calculate rate for each pool using DL$ as allocation
base for manufacturing costs and units sold as allocation base for non-manufacturing
costs
2. Use allocation rates to allocate overhead from each cost pool
