Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Question
Chapter 7, Problem 4DQ
To determine
Explain the likely behavior of the managers of the producing departments and explain the reason for which allocation will correct this type of behavior.
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Assume that a company has decided not to allocate any support department costs to producing departments. Describe the likely behavior of the managers of the producing departments. Would this be good or bad? Explain why allocation would correct this type of behavior.
What of the following is NOT a Benefit of Activity Based Management?
a.It assists in the budgeting process.
b.It aids management in cost cutting and/or cost control and inferentially in product profitability.
c.It causes managers to identify non-value added activities and therefore encourages thinking of means of reducing such activities.
d.Is more complex than traditional accounting system because it uses multiple cost application rates, one for each activity or cost pool.
Which of the following statements are false? SELECT ALL THAT APPLY
a. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.
b. A new fixed cost that must be paid if a special offer is accepted is not relevant in making the decision.
c. A cost that will be incurred regardless of which course of action a manager takes is relevant to the manager's decision.
d. Your Company is considering replacing Machine X. The original cost of Machine X is not relevant to this decision.
Chapter 7 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 7 - Describe the two-stage allocation process for...Ch. 7 - Why must support service costs be assigned to...Ch. 7 - Explain how allocation of support service costs is...Ch. 7 - Prob. 4DQCh. 7 - Explain how allocating support service costs will...Ch. 7 - Prob. 6DQCh. 7 - Explain why it is better to allocate budgeted...Ch. 7 - Why is it desirable to allocate variable costs and...Ch. 7 - Explain why either normal or peak capacity of the...Ch. 7 - Explain why variable bases should not be used to...
Ch. 7 - Prob. 11DQCh. 7 - Explain the difference between the direct method...Ch. 7 - The reciprocal method of allocation is more...Ch. 7 - What is a joint cost? How does it relate to...Ch. 7 - How do joint costs differ from other common costs?Ch. 7 - The expected costs for the Maintenance Department...Ch. 7 - Prob. 2CECh. 7 - Valron Company has two support departments, Human...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3 and solve for...Ch. 7 - Orchard Fresh, Inc., purchases apples from local...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - A company manufactures three products, L-Ten,...Ch. 7 - Refer to Cornerstone Exercise 7.10. (Round...Ch. 7 - Classify each of the following departments in a...Ch. 7 - Prob. 13ECh. 7 - Identify some possible causal factors for the...Ch. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Kumar, Inc., evaluates managers of producing...Ch. 7 - Refer to the data in Exercise 7.18. When the...Ch. 7 - Jasmine Company manufactures both pesticide and...Ch. 7 - Refer to the data in Exercise 7.20. The company...Ch. 7 - Eilers Company has two producing departments and...Ch. 7 - Refer to the data in Exercise 7.22. The company...Ch. 7 - Refer to the data in Exercise 7.22. The support...Ch. 7 - Alomar Company manufactures four products from a...Ch. 7 - Refer to Exercise 7.25 and allocate the joint...Ch. 7 - Pacheco, Inc., produces two products, overs and...Ch. 7 - Minor Co. has a job order cost system and applies...Ch. 7 - A CPA would recommend changing from plantwide...Ch. 7 - A company uses charging rates to allocate service...Ch. 7 - Chester Company provided information on overhead...Ch. 7 - Which of the following statements is true? a. The...Ch. 7 - Biotechtron, Inc., has two research laboratories...Ch. 7 - AirBorne is a small airline operating out of...Ch. 7 - Duweynie Pottery, Inc., is divided into two...Ch. 7 - Macalister Corporation is developing departmental...Ch. 7 - Prob. 37PCh. 7 - Welcome Inns is a chain of motels serving business...Ch. 7 - Sonimad Sawmill, Inc. (SSI), purchases logs from...Ch. 7 - Prob. 40P
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Similar questions
- Why would management be concerned about the accuracy of product costs?arrow_forwardWhich of the following is not a qualitative decision that should be considered in an outsourcing decision? A. employee morale B. product quality C. company reputation D. relevant costsarrow_forwardIf the organization operates at an activity level outside the relevant range, any cost predictions based on data from the relevant range may not be very accurate. True or False?arrow_forward
- Which among the following is not a relevant cost for decision making? a. Cost of producing additional units in case an order is accepted b. Future rent payments c. Depreciation of machinery d. Costs that can be avoided as a result of managerial decisionsarrow_forwardWhen allocating support department costs, managers must identify cost pools. The choice of cost pools is: Question 2 options: not influenced by the allocation base. not important, because all support department costs will eventually be allocated anyway. influenced by the design of the accounting information system. determined by whether a company uses IFRS or ASPE.arrow_forwardDifferential costs represent – Group of answer choices the costs which is shown in the balance sheet but not expensed in the income statement until the sale of the products. The differences in costs among different departments of an organization. the amount of increase or decrease in costs from a particular course of action when compared to its alternatives the difference between controllable costs and non-controllable costs.arrow_forward
- Which of the following is NOT a period cost? Select one: O a. manufacturing costs. Ob general and administrative costs. Oc marketing costs. Od. research and development costs. Which of the following is NOT one of the questions management accountants might attempt to help answer in the formulation of strategy? Select one: a. What substitute products exist in the marketplace? Ob. Who are our most important customers? Does the strategy comply with GAAP (Generally Accepted Accounting Principles)? Od. Will adequate cash be available to implement the strategy?arrow_forwardManagers often assume a strictly linear relationship between cost and the level of activity.Under what conditions would this be a valid or invalid assumption?arrow_forwardWhich of the following statements is false? Cost allocations such as activity-based costing allow manager to evaluate profitability of their products. A budget is a quantitative plan for acquiring and using financial and other resources over a specific forthcoming time period. A detailed activity-based costing system is costly to implement. Using different allocation base does not affect manufacturing overhead costs allocated to each product.arrow_forward
- For what purpose should the managerial accountant be careful to not use joint cost allocations?arrow_forwardThe management of a company is of the opinion that implementiona of a standard costing mechanism is a desirable vehicle for accomplishing the objectives of a progressive management. State some uses of standard costs that can be associated with the above decision. Are there any disadvantages?arrow_forwardTrue or false A cost center manager does not have the ability to produce revenue.arrow_forward
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