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A cost center does not directly generate revenues.

a)            True

b)            False

12.          Allocations of joint product costs can be based on the relative market values of the products:

a)            And never on the relative physical quantities of the products.

b)            Plus an adjustment for future excess margins.

c)            And not on any other basis.       

d)            At the time the products are separated.

e)            Only if the products contain both direct and indirect costs.


13.          Contribution to overhead generated by a department is the same as gross profit generated by that department.

a)            True

b)            False


14.          Mace Department store allocates its service department expenses to its various operating (sales) departments. The following data is available:

Expense                               Basis For Allocation                        Amount

Rent                                      Square feet of floor space           $24,000

Advertising                         Amount of dollar sales                   $30,000

Administrative                  Number of Employees                  $45,000

   The following information is available for its three operating (sales) departments:

Department       Square Feet                       Dollar Sales                                        Number of Employees                                  A                 3,000                                        $280000                                                             6                                                              B                 3,400                                    $300,000                                                           8                                                              C                 3,600                                    $420,000                                                                10                                          

What is the total expense allocated to Department B?

a)            $29,375.

b)            $30,462.

c)            $30,500.

d)            $30,775.

e)            $32,160.


15.          Evaluation of the performance of managers of profit centers assumes that the managers can control or influence both costs and revenue generation.

a)            True

b)            False


16.          Joint costs are a group of several costs incurred in producing or purchasing a single product.

a)            True

b)            False


17.          Dresden, Inc., has four departments. Information about these departments follows:

Maintenance                     Cutting                                 Assembly            Packaging

Direct Costs                                                $18000                            $30000                   $70,000               $45000

Square Ft of Space                                     500                                   1,000                      2,000                   3,000

No. Of Employees                                           2                                        3                              16        4                                      

   If maintenance costs are allocated to the other departments based on floor space occupied by each, the amount of maintenance cost allocated to the Cutting Department is:

a)            $ 2,769.

b)            $ 3,000.

c)            $ 3,724.

d)            $ 6,000.

e)            $18,000.


18.          Since the process cost summary describes the activities of a production department for a specified reporting period, it does not present information about any costs incurred in prior periods.

a)            True

b)            False


19.          If a department that applies process costing starts the reporting period with 50,000 physical units that were 25% complete with respect to direct materials and 40% complete with respect to direct labor, it must add 12,500 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

a)            True

b)            False


20.          Factory overhead costs can be allocated by a process cost accounting system to the output of production departments by using a predetermined overhead allocation rate. 

a)            True

b)            False


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