1. What is the primary purpose of cost allocation? A) To provide information for economic decisions B) To motivate managers and employees C) To justify costs or compute reimbursement D) All of the above Answer: D) All of the above Rationale: Cost allocation serves several purposes, including providing information for decision making, motivating staff, and justifying costs or computing reimbursements. 2. In activity-based costing, how are activity cost pools used? A) To accumulate costs associated with a single activity B) To distribute costs across multiple products C) To identify non-value-added activities D) Both A and B Answer: D) Both A and B Rationale: Activity cost pools are used to gather all costs related to a particular activity and then those costs are assigned to products based on their use of the activities. 3. Which of the following best describes 'job order costing'? A) A costing method used when products are continuously produced B) A costing method used for unique products or specialized services C) A costing method that assigns the same amount of overhead to each unit D) A costing method that uses a predetermined overhead rate Answer: B) A costing method used for unique products or specialized services Rationale: Job order costing is applied in situations where products are distinct and made to order, allowing for individual cost tracking. 4. What does the term 'variable cost' imply? A) The cost varies per unit but remains constant in total B) The cost remains constant per unit but varies in total C) The cost is not affected by the level of production D) The cost cannot be easily traced to the product Answer: B) The cost remains constant per unit but varies in total Rationale: Variable costs change in total based on the level of production