ch14tif - CHAPTER 14: COST ALLOCATION,...

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Unformatted text preview: CHAPTER 14: COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS TRUE/FALSE 1. Indirect costs are costs that cannot be traced to cost objects in an economically feasible way. Answer : True Difficulty : 1 Objective : 1 2. To motivate engineers to design simpler products, costs for production, distribution, and customer service may be included in product-cost estimates. Answer : True Difficulty : 2 Objective : 1 3. For external reporting, inventoriable costs under GAAP sometimes include R&D costs. Answer : False Difficulty : 2 Objective : 1 Under GAAP, inventoriable costs include only the costs of producing and sometimes the design costs of the product. 4. Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases. Answer : False Difficulty : 3 Objective : 2 Companies are moving toward more-detailed and more-complex cost allocations because today technology can capture these costs in a relatively inexpensive manner. 5. When using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases. Answer : True Difficulty : 1 Objective : 2 6. The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation. Answer : False Difficulty : 2 Objective : 2 The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation. 7. The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach. Answer : False Difficulty : 2 Objective : 2 The benefits of implementing a more-complex cost allocation system are difficult to measure. Chapter 14 Page 1 8. Each company must decide which corporate cost categories should be included in the indirect costs of the divisions -- all, only a subset, or none. Answer : True Difficulty : 2 Objective : 3 9. Full allocation of corporate costs to divisions is justified when the notion of controllability is applied. Answer : False Difficulty : 3 Objective : 3 The controllability notion is used to justify excluding some or all corporate costs from division reports, not to justify including full costs. 10. When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources. Answer : False Difficulty : 2 Objective : 3 The greater the degree of homogeneity, the fewer the cost pools required to accurately explain the use of company resources. 11. If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately....
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This note was uploaded on 04/29/2011 for the course ACCT 3001 taught by Professor Erickson during the Spring '10 term at University of Minnesota Duluth.

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ch14tif - CHAPTER 14: COST ALLOCATION,...

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