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COMPETENCE. COMPASSION. COMMITMENT.

Name: ________________________ Section: ___________________ Date: __________ ID: A

Quiz- ABC and Service Department Allocation

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. (SUPPORT DEPARTMENT ALLOCATION) In determining the right method for allocating equipment
depreciation to departments, the best recommendation is to:
a. use the cost of equipment in the department as a basis for allocation
b. allocate on the basis of square footage used in a given department
c. charge the amounts to General Plant
d. use algebraic techniques

____ 2. (SUPPORT DEPARTMENT ALLOCATION) The most reasonable basis for allocating worker's
compensation insurance is:
a. departmental payroll c. kilowatt-hours
b. building depreciation d. number of employees

____ 3. (SUPPORT DEPARTMENT ALLOCATION) A company is attempting to allocate the costs of electricity in
various departments. The variable portion of electricity expense is to be allocated using kilowatt-hours. The
information needed in order to allocate the fixed portion of the current period's electricity expense is:
a. square footage in each department
b. estimated materials consumption
c. number of machines in each department
d. number of employees

____ 4. (SUPPORT DEPARTMENT ALLOCATION) The method for allocating service department costs that
requires the least clerical work is:
a. allocation to other service departments only
b. simultaneous method
c. direct method
d. use of square footage in each department

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Name: ________________________ ID: A

____ 5. (SUPPORT DEPARTMENT ALLOCATION) The following statement that best describes cost allocation is:
a. a company should select an allocation base to raise or lower reported income on given
products
b. a company's total income will remain unchanged no matter how indirect costs are
allocated
c. a company can affect total income the most strongly by using the algebraic method of
allocating indirect costs
d. a company, as a general rule, should allocate indirect costs randomly or based on an
"ability-to-bear" criterion

____ 6. (SUPPORT DEPARTMENT ALLOCATION) A factor to be considered in deciding the kinds of departments
required for establishing accurate departmental overhead rates with which to control costs is:
a. similarity of operations, procedures, and machinery in each department
b. all of these
c. responsibilities for production and costs
d. location of operations, processes, and machinery

____ 7. (SUPPORT DEPARTMENT ALLOCATION) All of the following objectives are reasons to allocate service
department costs to compute full cost except to
a. provide information on cost recovery.
b. abide by regulations that may require full costing in some instances.
c. provide information on controllable costs.
d. reflect production's "fair share" of costs.

____ 8. (SUPPORT DEPARTMENT ALLOCATION) Which of the following is a reason for allocating service
department costs and thereby motivating management?
a. provides for cost recovery
b. provides relevant information in determining corporate-wide profits generated by
alternative actions
c. meets regulations in some pricing instances
d. reflects usage of services on a fair and equitable basis

____ 9. Traditionally, overhead has been assigned based on direct labor hours or machine hours. What effect does
this have on the cost of a high-volume item?
a. over-costs the product
b. under-costs the product
c. has no effect the product cost
d. cost per unit is unaffected by product volume

____ 10. Relative to traditional product costing, activity-based costing differs in the way costs are
a. processed.
b. allocated.
c. benchmarked.
d. incurred.

____ 11. Examples of activities at the batch level of costs include:

a. cutting, painting, and packaging
b. scheduling, setting up, and moving
c. designing, changing, and advertising
d. heating, lighting, and security

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Name: ________________________ ID: A

____ 12. Examples of activities at the product level of costs include:

a. cutting, painting, and packaging
b. scheduling, setting up, and moving
c. designing, changing, and advertising
d. heating, lighting, and security

____ 13. Unit-level costs are costs that:

a. inevitably increase whenever a unit is produced
b. are caused by the number of batches produced and sold
c. are incurred to support the number of different products produced
d. are incurred to sustain capacity at a production site

____ 14. All of the following are distinctions that usually exist between traditional and ABC costing systems, except
that:
a. the number of overhead cost pools tends to be lower in ABC systems
b. the number of allocation bases tend to be higher in ABC systems
c. costs within an ABC cost pool tend to be more homogeneous than the costs within a
traditional system's cost pool
d. all ABC systems are two-stage costing systems, while traditional systems may be one- or
two-stage

____ 15. Compared to an ABC system, a traditional costing system reports:

a. a lower unit cost for high-volume products and a higher unit cost for low-volume
products
b. a higher unit cost for high-volume products and a lower unit cost for low-volume
products
c. the same unit costs for high- and low-volume products as does an ABC system
d. either higher or lower unit cost for high-volume products than an ABC system depending
upon the level of fixed costs

____ 16. All of the following are distinctions that usually exist between traditional and ABC costing systems, except
that:
a. the number of overhead cost pools tends to be higher in ABC systems
b. the number of allocation bases tend to be higher in ABC systems
c. costs within an ABC cost pool tend to be more homogeneous than the costs within a
traditional system's cost pool
d. all ABC systems are one-stage costing systems, while traditional systems may be one- or
two-stage

____ 17. Traditional costing system are characterized by their use of which of the following measures as beses for
allocating overhead costs to output:
a. unit-level drivers c. product-level drivers
b. batch-level drivers d. plat-level drivers

____ 18. ABC systems are characterized by their use of whoich of the following measures as bases for allocating
overhead to output:
a. unit-level drivers c. product-level drivers
b. batch -level drivers d. all of these

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Name: ________________________ ID: A

____ 19. All of the following are distinctions that usually exist between traditional and ABC costing systems, except
that:
a. the number of overhead cost pools tends to be higher in ABC systems
b. the number of allocation bases tends to be higher in traditional costing system
c. all ABC systems are two-stage costing systems, while traditional systems is usually on
one stage
d. none of these

____ 20. Activity-based costing:

a. is the initial phase of converting to a just-in time operating environment
b. can be used only in a job order costing system
c. is a two-phase overhead cost allocation system that identifies activity cost pools and cost
drivers
d. uses direct labor as its primary cost driver

____ 21. Design of an ABC system requires:

a. that the job bid process be redeigned
b. that a cause-and-effect relationship exist between resource costs and individual activities
c. an adjustment to product mix
d. none of these

____ 22. Companiex use ABC system information:

a. to analyze costs c. to evaluate performance
b. to prepare budgets d. all of these

____ 23. It is important that the product costs reflect as much of the diversity and complexity of the manufacturing
process so that:
a. product costs will reflect their relative consumprion of resources
b. nonvalue-added costs can be eliminated
c. there is less likelihood of cross subsidizing of product costs
d. all of these

____ 24. A well-designed, activity-based cost system helps managers make better decisions because infromation
derived from an ABC analysis:
a. can be used to eliminate nonvalue-added activities
b. is easy to analyze and interpret
c. takes the choices and judgment challanges away from the managers
d. emphasizes how managers can achieve higher sales

____ 25. A key reson for using an ABC system rather than a department-costing system is because ABC assignes
indirect costs:
a. using broader averages
b. more simply than a department-costing system
c. In a less costly manner
d. to reflect differences required by different processes are well as customers

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Name: ________________________ ID: A

____ 26. The term cost driver refers to

a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management accountant.
d. any activity that causes costs to be incurred.

____ 27. Cost allocation bases in activity-based costing should be

a. cost drivers.
b. value-added activities.
c. activity centers.
d. processes.

____ 28. In activity-based costing, final cost allocations assign costs to

a. departments.
b. processes.
c. products.
d. activities.

____ 29. Of the following, which is the best reason for using activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to cost pools so that these costs are better
controlled
c. to better assign overhead costs to products
d. to assign indirect service overhead costs to direct overhead cost pools

____ 30. Activity analysis allows managers to

a. classify activities so that processes can be eliminated.
b. devise ways to minimize or eliminate non-value-added activities.
c. evaluate process performance to gain competitive advantages.
d. all of the above.

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Name: ________________________ ID: A

COMPUTATIONAL (3PTS EACH)

Direction: Round-off percentages and final answers into two decimal points.

(INFORMATION FOR THE NEXT 4 QUESTIONS) ABC Incorporated policy is to allocate budgeted costs
from support departments to revenue-generating departments as part of overhead to be assigned to each
product. ABC has two service departments namely, administration and human resources departments; and
two production departments, assembly and packaging departments. At the beginning of the year, the
company has the following budgeted costs and related cost drivers and/or basis of allocation to each
department:

Budgeted Direct Peso of Assets No. of Square foot

Departments Costs Employed Employees of floor
space
Administration PHP2,800,000 PHP2,000,000 60 400
Human Resources 3,388,000 1,600,000 20 320
Assembly 9,600,000 2,400,000 56 480
Packaging 8,212,000 4,000,000 84 800
TOTAL PHP24,000,000 PHP10,000,000 220 2,000

Budgeted Direct Costs Breakdown are as follows:

Departments Material Labor Overhead

Administration PHP120,000 PHP2,300,000 PHP380,000
Human Resources 135,000 2,903,000 350,000
Assembly 5,280,000 2,736,000 1,584,000
Packaging 3,284,800 3,941,760 985,440

Materials for support departments are for office supplies while labor includes salaries of staff, suppervisor,
and managers. For operation departments materials are for raw materials used in the inventory and labor
costs are for wages of factory workers.

Plantwide overhead rate is computed using direct labor hours. For next year budgeted labor hours totaled
295,680 hours.

The company uses square foot of floor space and no. of employees in allocating the costs of administration
and human resources, respectively.

Required: Compute for the following:

31. Total service department costs allocated to Packaging department using Direct Method.

32. Total service department costs allocated to Assembly Department using Step-down Method (Assume that the
human resources department provides the highest benefits to other departments).

33. Total service department costs allocated to Packaging department using Reciprocal Menthod:

34. Total service department costs allocated to Assembly department using Algebraic Method:

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Name: ________________________ ID: A

35. Compute the predetermined overhead rate using direct method.

36. Compute the predetermined overhead rate using step-method.

37. Assumming the company is using reciprocal method to allocate service department costs to production,
compute the selling price per unit assumming budgeted production (finished goods) totaled 100,000.

38. Assumming the company is using step- method to allocate service department costs to production, compute
the selling price per unit assumming budgeted production (finished goods) totaled 100,000.

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 ID: A

Quiz- ABC and Service Department Allocation

Answer Section

MULTIPLE CHOICE

1. ANS: A PTS: 1
2. ANS: A PTS: 1
3. ANS: A PTS: 1
4. ANS: C PTS: 1
5. ANS: B PTS: 1
6. ANS: B PTS: 1
7. ANS: C PTS: 1 DIF: Moderate OBJ: 13-5
8. ANS: D PTS: 1 DIF: Moderate OBJ: 13-5
9. ANS: A PTS: 1 DIF: Easy OBJ: 4-5
10. ANS: B PTS: 1 DIF: Easy OBJ: 4-5
11. ANS: B PTS: 1
12. ANS: C PTS: 1
13. ANS: A PTS: 1
14. ANS: A PTS: 1
15. ANS: B PTS: 1
16. ANS: D PTS: 1
17. ANS: A PTS: 1
18. ANS: D PTS: 1
19. ANS: B PTS: 1
20. ANS: C PTS: 1
21. ANS: B PTS: 1
22. ANS: D PTS: 1
23. ANS: D PTS: 1
24. ANS: A PTS: 1
25. ANS: D PTS: 1
26. ANS: D PTS: 1 DIF: Moderate OBJ: 4-3
27. ANS: A PTS: 1 DIF: Easy OBJ: 4-3
28. ANS: C PTS: 1 DIF: Easy OBJ: 4-4
29. ANS: C PTS: 1 DIF: Easy OBJ: 4-5
30. ANS: B PTS: 1 DIF: Easy OBJ: 4-3

PROBLEM

31. ANS:
TBD

PTS: 1

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 ID: A

32. ANS:
TBD

PTS: 1
33. ANS:
TBD

PTS: 1
34. ANS:
TBD

PTS: 1
35. ANS:
TBD

PTS: 1
36. ANS:
TBD

PTS: 1
37. ANS:
TBD

PTS: 1
38. ANS:
TBD

PTS: 1