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Exam 9: Performance Measurement and Responsibility Accounting

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Question 71

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Product lines are often evaluated as profit centers.

A) True
B) False

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Question 72

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The Menswear Department of Major's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Menswear Department's contribution to overhead as a percent of sales is:

A) 7.8%.
B) 14.9%.
C) 29.5%.
D) 66.7%.
E) 85.4%.

F) D) and E)
G) B) and D)

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Question 73

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Departmental contribution to overhead is calculated as the amount of sales of the department less:

Differential Chemical produced 10,000 gallons of Preon and 20,000 gallons of Paron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Preon has a market value of $6.00 per gallon and Paron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Preon if the value basis is used.

Which of the following statements is correct concerning the elements of cycle time?

Pepper Department store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments: The following information is available for its three operating (sales) departments: What is the total advertising expense allocated to Department B?

Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period: The total cost of operating the Milling Department for the current period is:

Departmental information is usually distributed to the public as part of the company's annual report and footnotes.

A responsibility accounting performance report usually compares actual costs to budgeted costs amounts by management level.

City Park College allocates administrative costs to its teaching departments based on the number of students enrolled, while maintenance and utilities are allocated based on square feet of classrooms. Based on the information below, what is the total amount of expenses allocated to each department (rounded to the nearest dollar) if administrative costs for the college were $180,000, maintenance expenses were $70,000, and utilities were $85,000? Teaching Size of Department Students Classroom Electronics 117 900 sq. ft. Automotive 156 750 sq. ft. Computers 429 1,200 sq. ft. Plumbing 78 150 sq. ft.

Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: The amount of the total office expenses that should be allocated to Grinding for the current period is:

Allocating joint costs to products using a value basis method is based on their relative:

No standard rule identifies the best basis of allocating expenses across departments, so it is impossible to allocate costs in a manner that will be perceived as fair.

A cost center is a unit of a business that incurs costs without directly generating revenues. All of the following are considered cost centers except:

Canfield Technical School allocates administrative costs to its respective departments based on the number of students enrolled, while maintenance and utilities are allocated per square feet of the classrooms. Based on the information below, what is the total amount of administrative cost to the Accounting Department (rounded to the nearest dollar) if administrative costs for the school were $50,000, maintenance fees were $12,000, and utilities were $6,000?

If a company reports profit margin of 31.6% and investment turnover of 1.30 for one of its investment centers, the return on investment must be:

Holliday, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows: $\begin{array}{l}\text { Holliday, Inc. Departmental Income Statement for Year Ended December } 31\\\begin{array} { | l | r | r | r | } \hline & { \text { Dept. A } } & \text { Dept. B } & { \text { Combined } } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & \$ 380,000 \\\hline\text { Direct expenses } & \underline { 129,900 } & \underline { 142,870 } & \underline { 272,770 } \\\hline \text { Contributionsto overhead } & \underline {\$ 50,100 }& \underline {\$ 57,130} &\underline { \$ 107,200 }\\\hline \text { Indirect expenses: } & & & \\\hline \text { Depreciation-Building } & 10,000 & 11,760 & 21,760 \\\hline \text { Maintenance } & 1,600 & 1,700 & 3,300 \\\hline \text { Utilities } & 6,200 & 6,320 & 12,520 \\\hline \text { Office expenses } & \underline {1,800} & \underline { 2,000 } & \underline { 3,800} \\\hline\text { Total indirect expenses } &\underline { \$ 19,600} & \underline {\$ 21,780 }&\underline { \$ 41,380} \\\hline \text { Net income } &\underline {\$30,500}&\underline {\$35,350}&\underline {\$65,850}\\\hline\end{array}\end{array}$ Holliday allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales. Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200. Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.) $\begin{array} { | l | r | r | r | r | } \hline & { \text { Dept. A } } & { \text { Dept. B } } & \text { Dept. C } & \text { Combined } \\\hline \text { Sales } & \$ 180,000 & \$ 200,000 & & \\\hline \text { Direct expenses } & 129,900 & 142,870 & & \\\hline \begin{array} { l } \text { Contributionsto } \\\text { overhead }\end{array} & \$ 50,100 & \$ 57,130 & & \\\hline \text { Indirect expenses } & & & & \\\hline \text { Depreciation-building } & & & & \\\hline \text { Maintenance } & & & & \\\hline \text { Utilities } & & & & \\\hline \text { Office expenses } & & & & \\\hline \text { Total indirect expenses } & & & & \\\hline \text { Net income } & & & & \\\hline\end{array}$

Williams Co. operates three separate departments (R, S, T). The data below is provided for the current year: Total Sales…………………... $120,000 ($40,000 from each department) Cost of Goods Sold…………. $ 80,000 (50% from R; 25% from S; 25% from T) Direct Expense……………… $ 26,000 ($6,000 from R; $12,000 from S; $8,000 from T) Indirect Expenses……………… $ 9,000 Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

Ready Company has two operating (production) departments: Assembly and Painting. Assembly has 150 employees and occupies 44,000 square feet; Painting has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the current period are as follows: Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The amount of administration expenses that should be allocated to the Assembly Department for the current period is:

Fallow Corporation has two separate profit centers. The following information is available for the most recent year: The West Division occupies 5,000 square feet in the plant. The East Division occupies 3,000 square feet. Rent, which was $40,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.