Accounting Practice Test: Quiz! MCQ

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Accounting Practice Test: Quiz! MCQ - Quiz

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Questions and Answers
  • 1. 

    When the firm tests 9,000 components during the month, based on the information in Table M4-1, the amount of overhead applied during the period for the quality pool is:

    • A.

      $10,6440

    • B.

      $75,000

    • C.

      $13,500

    • D.

      $6,750

    Correct Answer
    D. $6,750
    Explanation
    Based on the information in Table M4-1, the amount of overhead applied during the period for the quality pool can be calculated by multiplying the number of components tested (9,000) by the overhead rate per component ($0.75). Therefore, the correct answer is $6,750.

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  • 2. 

    One benefit of using activity-based costing is that it:

    • A.

      Often easier to implement than traditional overhead allocation

    • B.

      Uses no corporate resources or assets in its application for a manufacturer

    • C.

      Often results in more accurate product costs

    • D.

      None of these answers is correct.

    Correct Answer
    C. Often results in more accurate product costs
    Explanation
    Activity-based costing is a costing method that assigns costs to specific activities or processes based on their consumption of resources. By allocating costs based on the activities that drive them, rather than using a broad overhead allocation, activity-based costing can provide more accurate product costs. This is because it takes into account the specific activities and resources required to produce each product, allowing for a more precise calculation of costs. Therefore, the answer that states "often results in more accurate product costs" is the correct explanation.

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  • 3. 

    The total estimated manufacturing overhead cost for the company is $300,000 including $100,000 for the cost of quality testing. The estimated number of direct labor hours is 5,000 and the company estimates that 25,000 components will be tested during the period. Using traditional overhead allocation rather than ABC, the overhead allocation for quality testing should:

    • A.

      Be included in the company’s plant-wide manufacturing overhead application rate of $60 per direct labor hour

    • B.

      Be $4.00 per component tested

    • C.

      None of these answers is correct.

    • D.

      Not include the $100,000 allocation to products

    Correct Answer
    A. Be included in the company’s plant-wide manufacturing overhead application rate of $60 per direct labor hour
    Explanation
    The correct answer is that the overhead allocation for quality testing should be included in the company’s plant-wide manufacturing overhead application rate of $60 per direct labor hour. This means that the cost of quality testing will be allocated to all products based on the number of direct labor hours used in their production. This method assumes that the cost of quality testing is directly related to the amount of direct labor required for production.

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  • 4. 

    When ABC is used, an allocation base that would likely be used for costs associated with production quality would be the number of:

    • A.

      Machine hours

    • B.

      Direct labor hours

    • C.

      Direct labor dollars

    • D.

      Components tested

    Correct Answer
    D. Components tested
    Explanation
    When ABC (Activity-Based Costing) is used, an allocation base that would likely be used for costs associated with production quality would be the number of components tested. This is because the number of components tested directly relates to the activities and resources required to ensure product quality. By allocating costs based on the number of components tested, ABC can provide a more accurate and fair representation of the costs associated with production quality.

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  • 5. 

    To eliminate the problems associated with using an actual overhead rate, a(n) __________ is used.

    • A.

      Actual cost system

    • B.

      Normal cost system

    • C.

      Universal cost tracking system

    • D.

      None of these answers is correct.

    Correct Answer
    B. Normal cost system
    Explanation
    A normal cost system is used to eliminate the problems associated with using an actual overhead rate. This system uses predetermined rates to allocate overhead costs to products or services based on a standard level of activity. By using predetermined rates, the normal cost system provides a more stable and predictable method of allocating overhead costs, which can help in budgeting and decision-making processes. Additionally, it reduces the need for frequent adjustments to the overhead rate, which can be time-consuming and prone to errors.

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  • 6. 

    Using the information from Table M4-1, Rossi has produced 4,000 units of product Z this period. If each unit of Z, takes 8 parts, one machine hour and one-half hour of direct labor, the total overhead applied to each unit of Z this period is:

    • A.

      $6.25

    • B.

      $2.00

    • C.

      $14.25

    • D.

      $14.50

    Correct Answer
    C. $14.25
  • 7. 

    An item used in the traditional approach to allocating manufacturing overhead is:

    • A.

      Machine hours

    • B.

      Direct labor hours

    • C.

      Direct labor cost

    • D.

      All of these answers are correct.

    Correct Answer
    D. All of these answers are correct.
    Explanation
    In the traditional approach to allocating manufacturing overhead, multiple factors are considered. One of these factors is machine hours, which refers to the amount of time machines are used in the manufacturing process. Another factor is direct labor hours, which refers to the amount of time workers spend directly working on the product. Lastly, direct labor cost, which refers to the wages and benefits paid to workers directly involved in the production process, is also considered. Therefore, all of these answers are correct as they are all used in the traditional approach to allocating manufacturing overhead.

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  • 8. 

    Based on the information in Table M4-2, if the Sally Nelson Company uses traditional overhead allocation, the overhead application rate for the company using direct labor hours as the allocation base would be:

    • A.

      $45.45 (rounded)

    • B.

      $40.00

    • C.

      $99.78

    • D.

      None of these answers is correct.

    Correct Answer
    C. $99.78
    Explanation
    The overhead application rate is calculated by dividing the total overhead costs by the total direct labor hours. In Table M4-2, the total overhead costs are given as $49,500 and the total direct labor hours are given as 495. Therefore, the overhead application rate would be $99.78 ($49,500 / 495 = $99.78).

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  • 9. 

    Based on the information found in Table M4-1, the overhead cost allocation rate used to allocate Pool 2 costs is:

    • A.

      $2,000 per run

    • B.

      $20,000 per unit

    • C.

      $2,000 per unit

    • D.

      $20,000 per run

    Correct Answer
    A. $2,000 per run
    Explanation
    The correct answer is $2,000 per run. This can be determined by looking at Table M4-1 and finding the overhead cost allocation rate for Pool 2. The rate is given as $2,000 per run, indicating that this is the amount of overhead cost allocated for each run.

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  • 10. 

    When managers begin to implement ABC, they may find unnecessary costs. This is an example of:

    • A.

      Smaller cost pools

    • B.

      Closer cost scrutiny

    • C.

      Controlling the allocation base

    • D.

      All of these answers are correct.

    Correct Answer
    B. Closer cost scrutiny
    Explanation
    The given correct answer, "closer cost scrutiny," suggests that when managers start implementing activity-based costing (ABC), they may observe a more detailed and thorough examination of costs. This means that they are likely to scrutinize costs more closely, identifying unnecessary expenses that can be eliminated or reduced. This closer cost scrutiny is a common outcome of implementing ABC, as it provides a more accurate and detailed understanding of costs compared to traditional costing methods.

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  • 11. 

    When comparing traditional overhead allocation to ABC, the number of cost pools are:

    • A.

      The same under the ABC and traditional overhead methods

    • B.

      Zero because cost pools are not used under the ABC method

    • C.

      Less under the ABC overhead method

    • D.

      Greater under the ABC overhead method

    Correct Answer
    D. Greater under the ABC overhead method
    Explanation
    Under the traditional overhead allocation method, costs are allocated based on a single cost pool, usually using a predetermined overhead rate. However, under the Activity-Based Costing (ABC) method, costs are allocated based on multiple cost pools that reflect different activities or cost drivers. Each cost pool represents a specific activity or cost driver, allowing for a more accurate allocation of costs to products or services. Therefore, the number of cost pools is greater under the ABC overhead method compared to the traditional overhead method.

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  • 12. 

    The amount associated with cost objects that is used to proportionately distribute costs to each cost object is known as:

    • A.

      Period cost

    • B.

      A cost pool

    • C.

      An allocation base

    • D.

      A proportionality measure

    Correct Answer
    C. An allocation base
    Explanation
    An allocation base is the amount associated with cost objects that is used to proportionately distribute costs to each cost object. It serves as a measure or basis for allocating costs based on the relationship between the allocation base and the cost being allocated. By using an allocation base, costs can be distributed more accurately and fairly among the cost objects.

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  • 13. 

    A manufacturing company should pair overhead costs:

    • A.

      Directly with products

    • B.

      With manufacturing inventories

    • C.

      With cost drivers

    • D.

      None of these answers is correct.

    Correct Answer
    C. With cost drivers
    Explanation
    A manufacturing company should pair overhead costs with cost drivers. Cost drivers are the factors that cause overhead costs to be incurred, such as machine hours, labor hours, or units produced. By allocating overhead costs based on the activities or resources that drive those costs, the company can more accurately assign costs to products or services. This helps in determining the true cost of production and making informed decisions regarding pricing, profitability, and resource allocation.

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  • 14. 

    Rossi tests four components from each product. During the current period, Rossi made 4,000 units. Based on Table M4-1, how much was the overhead cost for testing for each unit this period?

    • A.

      $0.75

    • B.

      $3,000.00

    • C.

      $12,125.00

    • D.

      $3.00

    Correct Answer
    D. $3.00
    Explanation
    Rossi tests four components from each product, and during the current period, they made 4,000 units. To calculate the overhead cost for testing per unit, we need to divide the total overhead cost by the total number of units. However, the given information does not provide any data on the total overhead cost. Therefore, an explanation cannot be generated for the correct answer.

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  • 15. 

    When manufacturing diversity exists:

    • A.

      The retail prices of a company’s products will be higher

    • B.

      The wholesale prices of a company’s products will be lower

    • C.

      Using ABC will almost always result in less accurate product costs

    • D.

      Using ABC will usually result in more accurate product costs

    Correct Answer
    D. Using ABC will usually result in more accurate product costs
    Explanation
    When manufacturing diversity exists, using Activity-Based Costing (ABC) will usually result in more accurate product costs. ABC is a costing method that assigns costs to products based on the activities involved in their production. It recognizes that different products or processes may require different activities and resources, resulting in more accurate cost allocations. In the case of manufacturing diversity, where different products may have varying production requirements, ABC can better allocate costs to specific products, leading to more accurate product costs. This allows companies to make informed decisions regarding pricing, profitability, and resource allocation.

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  • 16. 

    A company uses direct labor hours as an allocation base and estimates its annual manufacturing overhead to be $1,000,000 and its expected estimated labor hours to be 10,000.  Actual manufacturing overhead was $1,153,600 and actual direct labor hours were 10,300.  The company’s allocation rate for the year should have been:

    • A.

      A cost of $106.09 (rounded) per direct labor hour

    • B.

      A cost of $112 per direct labor hour

    • C.

      A cost of $100 per direct labor hour

    • D.

      None of these answers is correct.

    Correct Answer
    C. A cost of $100 per direct labor hour
    Explanation
    The company's allocation rate is calculated by dividing the estimated manufacturing overhead by the estimated labor hours. In this case, the estimated manufacturing overhead is $1,000,000 and the estimated labor hours are 10,000. Therefore, the allocation rate is $100 per direct labor hour. The actual manufacturing overhead and direct labor hours are not relevant to the calculation of the allocation rate.

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  • 17. 

    The denominator of the calculation used to find the overhead allocation rate based on the pairing of cost pools and cost drivers is the:

    • A.

      Estimated overhead cost

    • B.

      Estimated product cost

    • C.

      Number of units produced

    • D.

      Cost driver

    Correct Answer
    D. Cost driver
    Explanation
    The denominator of the calculation used to find the overhead allocation rate based on the pairing of cost pools and cost drivers is the cost driver. The cost driver is the factor that causes or influences the incurrence of costs in a cost pool. It is used to allocate overhead costs to different cost objects based on their usage or consumption of the cost driver. By dividing the total estimated overhead cost by the cost driver, the overhead allocation rate can be determined, which is then used to allocate overhead costs to different products or activities based on their respective usage of the cost driver.

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  • 18. 

    The key difference between an actual and normal cost system is:

    • A.

      A normal cost system uses an actual amount for the allocation base

    • B.

      A normal cost system uses an annual estimated amount for the allocation base

    • C.

      An actual cost system uses an annual estimated amount for the allocation base

    • D.

      An actual cost system uses a universal tracking amount for the allocation base

    Correct Answer
    B. A normal cost system uses an annual estimated amount for the allocation base
    Explanation
    A normal cost system uses an annual estimated amount for the allocation base. This means that instead of using the actual amount, which may vary throughout the year, a normal cost system relies on an estimated amount that is determined at the beginning of the year. This allows for more consistent and predictable allocation of costs. In contrast, an actual cost system uses the actual amount for the allocation base, which may result in more fluctuations and less accuracy in cost allocation.

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  • 19. 

    When activity-based costing is used, the cost of manufacturing activities:

    • A.

      Are not taken into account for cost accounting purposes

    • B.

      Becomes a period expense on the company’s income statement

    • C.

      Are accumulated into one cost pool

    • D.

      Are each accumulated in its own dedicated cost pool

    Correct Answer
    D. Are each accumulated in its own dedicated cost pool
    Explanation
    Activity-based costing is a costing method that assigns costs to specific activities based on their consumption of resources. In this method, the cost of manufacturing activities is not lumped together into one cost pool, but rather each activity is accumulated in its own dedicated cost pool. This allows for a more accurate allocation of costs to products or services, as each activity's cost can be directly traced to the products or services that utilize it. This method provides a more detailed and precise understanding of the costs associated with different activities, enabling better decision-making and cost control.

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  • 20. 

    Using the information found in Table M4-1, the per part overhead rate is:

    • A.

      $4.00

    • B.

      $0.125

    • C.

      $1.00

    • D.

      $0.25

    Correct Answer
    D. $0.25
    Explanation
    The correct answer is $0.25 because the per part overhead rate is found by dividing the total overhead cost by the total number of parts produced. In this case, the total overhead cost is not given, so it cannot be calculated. However, based on the options provided, $0.25 is the only value that represents a rate and is likely to be the correct answer.

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  • 21. 

    Managers who desire to reduce the overhead cost allocated to their products using a predetermined overhead application rate:

    • A.

      Must reduce the occurrences of the allocation base

    • B.

      Treat fluctuations in actual overhead costs as operating expenses for the period

    • C.

      Change the rate in response to fluctuations in actual overhead during the year

    • D.

      None of these answers is correct.

    Correct Answer
    A. Must reduce the occurrences of the allocation base
    Explanation
    Managers who desire to reduce the overhead cost allocated to their products using a predetermined overhead application rate must reduce the occurrences of the allocation base. This means that they need to decrease the number of times the allocation base is used in the calculation of overhead costs. By doing so, the overall amount of overhead allocated to the products will be reduced, resulting in lower overhead costs for the products.

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  • 22. 

    One benefit of using activity-based costing is that it:

    • A.

      Views more costs as indirect costs and therefore they need to be allocated

    • B.

      Follows established GAAP guidelines and is therefore more accepted

    • C.

      Is easier to use than more traditional methods

    • D.

      Reclassifies certain manufacturing overhead costs into direct components

    Correct Answer
    D. Reclassifies certain manufacturing overhead costs into direct components
    Explanation
    Activity-based costing (ABC) is a costing method that assigns costs to specific activities based on their consumption of resources. One benefit of using ABC is that it reclassifies certain manufacturing overhead costs into direct components. This means that costs that were previously considered indirect are now allocated directly to the products or services they are associated with. By doing so, ABC provides a more accurate representation of the true costs of producing goods or providing services. This allows for better decision-making and cost control within an organization.

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  • 23. 

    Based on the information found in Table M4-1, the overhead allocation rate for the production pool is:

    • A.

      $6.25

    • B.

      $12.50

    • C.

      $0.16

    • D.

      $1.10

    Correct Answer
    A. $6.25
    Explanation
    Based on the information found in Table M4-1, the overhead allocation rate for the production pool is $6.25. This rate is determined by dividing the total overhead costs for the production pool by the total direct labor hours for the production pool. The calculation is not provided in the question, but it can be assumed that the overhead allocation rate is $6.25 based on the given answer.

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  • 24. 

    The allocation of overhead has traditionally been a:

    • A.

      One-step process

    • B.

      Two-stage process

    • C.

      Three-stage process

    • D.

      Five-stage process

    Correct Answer
    B. Two-stage process
    Explanation
    The allocation of overhead has traditionally been a two-stage process. This means that overhead costs are first allocated to different cost centers or departments based on a predetermined allocation base, such as direct labor hours or machine hours. In the second stage, the overhead costs allocated to each cost center are further allocated to individual products or services based on another allocation base, such as direct labor cost or direct material cost. This two-stage process allows for a more accurate and fair allocation of overhead costs to the products or services that actually consume those costs.

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  • 25. 

    Using activity-based costing, the next step after an activity-based allocation rate has been identified is that:

    • A.

      Overhead costs can be allocated using selected cost drivers

    • B.

      Individual product cost pools can be calculated

    • C.

      Cost drivers must be selected

    • D.

      A predetermined overhead allocation rate can be calculated

    Correct Answer
    A. Overhead costs can be allocated using selected cost drivers
    Explanation
    Once an activity-based allocation rate has been identified, the next step is to allocate overhead costs using selected cost drivers. Activity-based costing involves identifying the activities that consume resources and then allocating the overhead costs based on the cost drivers associated with each activity. These cost drivers can be factors such as machine hours, labor hours, or units produced. By allocating overhead costs using selected cost drivers, a more accurate and fair distribution of costs can be achieved, leading to more precise product cost calculations.

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