Question

38. The least-squares regression method can be used to approximate a cost function. A disadvantage of this method is ________.
A) it requires a lot of prior cost data
B) it does not use all the available data points
C) it requires subjective placement of the line
D) it is more subjective than engineering analysis
Answer: A
Diff: 2
LO: 3-4
AACSB: Reflective thinking skills
Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs portions of a mixed cost

39. Which of the following types of costs cannot be specifically and exclusively identified with a cost object in an economically feasible manner?
A) direct costs
B) indirect costs
C) variable costs
D) fixed costs

40. The monthly indirect production cost is Depreciation Expense on Production Equipment of $125,000. The cost allocation base is number of machine hours. The expected level of production in a month is 12,500 machine hours. What is the amount of indirect production cost per unit assigned to Product A and Product B. Product A requires 15 machine hours per unit. Product B requires 25 machine hours per unit.
Product A Product B
A) $1 $2
B) $10 $20
C) $100 $200
D) none of the above

41. Which of these costs is a direct cost for a manufactured wood table?
A) Rent Expense for factory building
B) Wood used to manufacture table
C) Depreciation Expense on factory equipment
D) Salary Expense of factory supervisor

42. Monthly indirect production costs are $650,000. The cost-allocation base for indirect costs is machine hours. The budgeted capacity for the month is 50,000 machine hours. Product A used 7,500 machine hours, Product B used 20,000 machine hours and Product C used 23,500 machine hours. How much of the indirect costs are allocated to Products B and C?
Product B Product C
A) $26,000 $30,550
B) $160,000 $275,000                                                      
C) $260,000 $305,500
D) none of the above

43. Depreciation Expense on the Heating and Air Conditioning Equipment for the factory of $80,000 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 15,000
Department B 5,000 5,000
Department C 30,000 20,000
Department D 20,000 35,000
Department E 10,000 25,000

How much Depreciation Expense is allocated to Department C?
A) $2,500
B) $7,500
C) $16,000
D) $18,750

Answer 1

39.

Indirect costs cannot be specifically and exclusively identified with a cost object in an economically feasible manner.

Hence, correct option is (B)

Direct costs (whether variable or fixed) can be easily identified with a cost object

40.

Depreciation expense = $125,000

Expected machine hours = 12,500

Hence, pre determined overhead rate = Depreciation expense/Expected machine hours

= 125,000/12,500

= $10 per machine hour

Product A requires 15 machine hours wheras product B requires 25 machine hours.

Hence, overhead rate per unit of product A = 15 x 10

= $150

Hence, overhead rate per unit of product B = 25 x 10

= $250

Hence, Correct option is (D) i.e. none of the above

41.

Direct cost is a cost which can be specifically identified with a cost object. Hence, Direct cost of manufacturing wood table is wood used to make wood table.

Hence, correct option is (B)

All other costs given in the question are indirect costs.

42.

Indirect production costs = $650,000

Expected machine hours = 50,000

Hence, pre determined overhead rate = Indirect production costs/Expected machine hours

= 650,000/50,000

= $13 per machine hour

Product B used 20,000 machine hours wheras product C used 23,500 machine hours.

Hence, overheads allocated to product B = 20,000 x 13

= $260,000

Hence, overheads allocated to product C = 23,500x 13

= $305,500

= $250

Hence, Correct option is (C)

43.

Depreciation expense =$80,000

Cost allocation base = Cubic feet

Total cubic feet = 100,000

Hence, depreciation expense per cubic feet = 80,000/100,000

= $0.80

Department C has 20,000 cubic feet

Hence, depreciation expense allocated tp department C = 20,000 x 0.80

= $16,000

Hence, Correct option is (C)

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