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Chapter 7 Quiz 4
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1
When inventory increases or decreases, reported profit remains unchanged under absorption and variable costing:
A)True
B)False
2
Ideally, a cost allocation base should be selected on cause-and-effect grounds; such as a cost driver:
A)True
B)False
3
The step-down method is more accurate than the reciprocal method because it accounts fully for allocation of services:
A)True
B)False
4
In a normal costing system, manufacturing overhead is applied to work in process inventory based on the predetermined overhead rate multiplied by the actual amount of cost driver used during the period:
A)True
B)False
5
The two-stages for cost allocation of departmental overhead rates are: Stage one where overhead costs are assigned to production departments; and Stage two where overhead costs are applied to the products:
A)True
B)False
6
Under the step-down method, each support department’s costs are allocated among the production departments that consume part of the support department’s output:
A)True
B)False
7
When allocating indirect costs, cost pools should not be used by management accountants as they make the allocation process more complex:
A)True
B)False





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