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Social Credit Checks Credit Reports and Other Cost Problems

Use the following to answer questions 11-15:

Scotia Credit Checks produces two styles of credit reports: Individual and Corporate. The difference between the two is the amount of background information and data collection required. The Corporate report uses more skilled personnel because additional checking and data are required. The relevant figures for the year just completed follow: Total support service costs to be allocated are $3,200,000.

Allocation base
Individual
Corporate

Data purchased
$40,000
$80,000

Research hours
24,000
30,000

Interview hours
1,000
10,000

Number of reports
16,000
3,000

11. Which cost-allocation based would the manager of the Individual Department prefer the most?

A) Data purchased

B) Research hours

C) Interview hours

D) Number of reports

12. The manager of the Corporate Report Department would least prefer which method of allocation?

A) Data purchased

B) Research hours

C) Interview hours

D) Number of reports

13. If service costs are allocated according to the number of reports, the service department cost to be allocated to the Individual report department will be:

A) $2,694,737

B) $505,263

C) $1,066,667

D) $290,909

14. If service department costs are allocated by data purchased, the Corporate report department will receive an allocation of:

A) $1,777,778

B) $1,066,667

C) $505,263

D) $2,133,333

15. Using the high-low method, which of the following could be used to calculate the intercept?

A) Total cost at highest cost driver level - (Variable cost per unit times the highest level).

B) Total cost at lowest cost driver level - (Variable cost per unit times the lowest level).

C) Either of the above.

D) Neither of the above.

16. Which of the following represent data problems when using regression or account analysis techniques?

A) Outliers.

B) Inflation.

C) Mismatched time periods.

D) All of the above.

17. Which cost estimation method is based on both past and future data?

A) Engineering method.

B) Regression method.

C) Account analysis method.

D) All of the above.

18. Which of the following would not be a reason that a company would use cost estimation?

A) Determining opportunities for reducing costs without reducing value to customers.

B) Determining how much to pay an employee.

C) Determining a pricing policy to discourage particular customers and attract others.

D) All of the above.

19. Which of the following is not a reason for padding a budget with slack?

A) People often perceive their performance will look better in their superior's eyes if they can "beat the budget".

B) The budget was developed by top management who have no idea of what goes

on in the various units of the company.

C) Budgetary slack is often used to cope with uncertainty.

D) Budgetary cost projections often are cut in the resource allocation process.

20. Unfavorable material quantity variances

A) could be caused by normal spoilage.

B) mean that smaller quantity discounts were taken on purchases.

C) mean that more direct materials were used than expected for actual output.

D) mean that less indirect materials were used than expected for actual output.

21. An unfavorable labor rate variance might be caused by

A) using less skilled labor.

B) using higher quality materials.

C) using poorly maintained machinery.

D) using more highly skilled workers.

22. Efficiency (quantity) variances focus on the difference between

A) actual quantity used and standard quantity allowed for unit produced.

B) actual costs of inputs and standard costs of inputs.

C) actual quantity used and standard quantity allowed for budgeted production.

D) both A and C)

23. Which of the following is not involved in establishing variable factory overhead costs?

A) Determining the patterns of variable factory overhead costs.

B) Computing the standard variable overhead rate.

C) Deciding upon the maximum sales price to obtain targeted market share.

D) Selecting the most appropriate cost driver for applying variable factor overhead to each cost object.

24. Which of the following will cause a negative or favorable fixed overhead volume variance

A) An unexpected increase in direct labor hours

B) An unexpected increase in direct material costs

C) An unexpected increase in variable overhead costs

D) An unexpected increase in production

25. Which of the following subunits is most likely to be considered an investment center?

A) Accounting department

B) Assembly department

C) Petrochemical division

D) Research and development department

Solution Summary

The solution solves a number of cost problems on credit reports and others.

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