Question

42. Monthly indirect production costs are $500,000. The cost-allocation base for indirect costs is machine hours. The budgeted capacity for the month is 100,000 machine hours. Product X used 15,000 machine hours, Product Y used 20,000 machine hours and Product Z used 25,000 machine hours. How much of the indirect costs are allocated to Products Y and Z?

      Product Y          Product Z

A) $2,500                   $7,500

B) $100,000               $125,000

C) $150,000               $175,000

D) none of the above

43. Depreciation Expense on the Heating and Air Conditioning Equipment for the factory of $40,000 is allocated to five departments. The cost-allocation base for this expense is the number of cubic feet, which equals 100,000 cubic feet. Information for five departments is below:

Department                   Square Feet                Cubic Feet

Department A              15,000                         10,000

Department B              10,000                         20,000

Department C              30,000                         15,000

Department D              20,000                         30,000  

Department E              10,000                         25,000

How much Depreciation Expense is allocated to Department B?

A) $12,500

B) $8,500

C) $15,000

D) $8,000

44. Indirect production costs do NOT include ________.

A) property taxes on factory building

B) rent expense on factory building

C) wages of security guards at corporate headquarters

D) wages of forklift truck operators in assembly area

Answer 1

Answer to Question No. 42

Option B is Correct.

Total Indirect Production Cost = $500,000
Budgeted Capacity = 100,000 Machine Hours
Machine Hours used by Product Y = 20,000 Machine Hours
Machine Hours used by Product Z = 25,000 Machine Hours

Indirect Cost allocated to Product Y = $500,000 * 20,000 / 100,000
Indirect Cost allocated to Product Y = $100,000

Indirect Cost allocated to Product Z = $500,000 * 25,000 / 100,000
Indirect Cost allocated to Product Z = $125,000

Answer to Question No. 43

Option D is Correct.

Total Depreciation Expense = $40,000
Total Cubic Feet used by Departments = 100,000 Cubic Feet
Total Cubic Feet used by Department B = 20,000 Cubic Feet

Depreciation Expense allocated to Department B = $40,000 * 20,000 / 100,000
Depreciation Expense allocated to Department B = $8,000

Answer to Question No. 44

Option C is Correct.

Indirect Cost are those which are not directly associated with the Production of product, but are necessary for production.

Wages of Security Guard at Corporate Headquarter is not a cost required for production, and it a Selling and Administrative Expense. Therefore, Wages of Security Guard at Corporate Headquarter is not a Indirect Production Cost.