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Depreciation and Cost Allocation

Description: This quiz will test your understanding of depreciation and cost allocation methods.
Number of Questions: 15
Created by:
Tags: depreciation cost allocation engineering economics
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Which of the following is not a method of depreciation?

  1. Straight-line

  2. Declining-balance

  3. Units-of-production

  4. Sinking fund

Show answer
Correct Option: D
Explanation:

Sinking fund is a method of saving money over time to pay for a future expense, not a method of depreciation.

The straight-line method of depreciation allocates the cost of an asset evenly over its:

  1. Useful life

  2. Salvage value

  3. Book value

  4. Depreciation period

Show answer
Correct Option: A
Explanation:

The straight-line method of depreciation allocates the cost of an asset evenly over its useful life.

The declining-balance method of depreciation allocates a larger portion of the cost of an asset to the:

  1. Beginning of its useful life

  2. End of its useful life

  3. Middle of its useful life

  4. None of the above

Show answer
Correct Option: A
Explanation:

The declining-balance method of depreciation allocates a larger portion of the cost of an asset to the beginning of its useful life.

The units-of-production method of depreciation allocates the cost of an asset based on the:

  1. Number of units produced

  2. Number of hours used

  3. Number of years of service

  4. None of the above

Show answer
Correct Option: A
Explanation:

The units-of-production method of depreciation allocates the cost of an asset based on the number of units produced.

The sinking fund method of depreciation involves setting aside a:

  1. Fixed amount of money each year

  2. Variable amount of money each year

  3. Lump sum of money at the end of the asset's useful life

  4. None of the above

Show answer
Correct Option: A
Explanation:

The sinking fund method of depreciation involves setting aside a fixed amount of money each year to pay for the replacement of the asset at the end of its useful life.

The cost of an asset is allocated to the periods in which it is used through the process of:

  1. Depreciation

  2. Amortization

  3. Depletion

  4. All of the above

Show answer
Correct Option: D
Explanation:

Depreciation, amortization, and depletion are all methods of allocating the cost of an asset to the periods in which it is used.

Depreciation is a non-cash expense, which means that it:

  1. Does not affect the company's cash flow

  2. Reduces the company's cash flow

  3. Increases the company's cash flow

  4. None of the above

Show answer
Correct Option: A
Explanation:

Depreciation is a non-cash expense, which means that it does not affect the company's cash flow.

The salvage value of an asset is the:

  1. Estimated value of the asset at the end of its useful life

  2. Original cost of the asset

  3. Book value of the asset

  4. None of the above

Show answer
Correct Option: A
Explanation:

The salvage value of an asset is the estimated value of the asset at the end of its useful life.

The book value of an asset is the:

  1. Original cost of the asset

  2. Salvage value of the asset

  3. Cost of the asset less accumulated depreciation

  4. None of the above

Show answer
Correct Option: C
Explanation:

The book value of an asset is the cost of the asset less accumulated depreciation.

The depreciation period is the:

  1. Time period over which an asset is depreciated

  2. Time period over which an asset is used

  3. Time period over which an asset is owned

  4. None of the above

Show answer
Correct Option: A
Explanation:

The depreciation period is the time period over which an asset is depreciated.

The purpose of cost allocation is to:

  1. Assign costs to specific cost objects

  2. Determine the profitability of a product or service

  3. Evaluate the performance of a manager

  4. None of the above

Show answer
Correct Option: A
Explanation:

The purpose of cost allocation is to assign costs to specific cost objects.

Activity-based costing (ABC) is a method of cost allocation that:

  1. Assigns costs to cost objects based on the activities that are performed to produce them

  2. Assigns costs to cost objects based on the volume of production

  3. Assigns costs to cost objects based on the direct labor hours used to produce them

  4. None of the above

Show answer
Correct Option: A
Explanation:

Activity-based costing (ABC) is a method of cost allocation that assigns costs to cost objects based on the activities that are performed to produce them.

The purpose of overhead allocation is to:

  1. Assign overhead costs to specific cost objects

  2. Determine the profitability of a product or service

  3. Evaluate the performance of a manager

  4. None of the above

Show answer
Correct Option: A
Explanation:

The purpose of overhead allocation is to assign overhead costs to specific cost objects.

The traditional method of overhead allocation is based on:

  1. Direct labor hours

  2. Machine hours

  3. Units of production

  4. None of the above

Show answer
Correct Option: A
Explanation:

The traditional method of overhead allocation is based on direct labor hours.

Activity-based overhead allocation is a method of overhead allocation that:

  1. Assigns overhead costs to cost objects based on the activities that are performed to produce them

  2. Assigns overhead costs to cost objects based on the volume of production

  3. Assigns overhead costs to cost objects based on the direct labor hours used to produce them

  4. None of the above

Show answer
Correct Option: A
Explanation:

Activity-based overhead allocation is a method of overhead allocation that assigns overhead costs to cost objects based on the activities that are performed to produce them.

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