Exam 24: Performance Measurement and Responsibility Accounting

Texas Toys,a retail store,has four sales departments supported by three service departments.Cost and operational data for each department follow: Purch. Sales Cost of Square Orders Department Sales Goods Sold Footage Issued Determine the service department expenses to be allocated to Sales Department 1 for: Advertising ___________________ Maintenance __________________ Purchasing ___________________

Generally,it does not matter how cost allocations are designed and explained,because most managers do not care whether the allocations appear to be fair or not.

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham.It reports the total amounts of direct and indirect expenses for the four departments.Purchasing department expenses are allocated to the operating departments on the basis of purchase orders.Maintenance department expenses are allocated based on square footage.Compute the amount of Maintenance department expense to be allocated to Fabrication.

A difficult problem in calculating the total costs and expenses of a department is:

The first three steps in preparing a departmental income statement are: (1)accumulate __________________ of the department,(2)allocate __________________ to the department,and (3)allocate _____________________ to the operating departments.

Responsibility accounting performance reports:

Return on investment is a useful measure to evaluate the performance of a cost center manager.

Samm's Department Store operates three departments (A,B and C).If total costs of $4,500 are to be allocated on the basis of square feet of space (Dept.A = 1,500 Sq.Ft.; Dept.B = 900 Sq.Ft.; Dept.C = 600 Sq.Ft.)then Dept A's share (in percent)of the $4,500 cost would be ________%; Dept.B would be ______%,and Dept C would be __________%.The amount of cost allocated to Dept.C would be $__________.

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000.Assume a target income of 10% of average invested assets.Compute residual income for the division:

Rent and maintenance expenses would most likely be allocated based on:

Keegan Co.has four departments: purchasing,human resources,manufacturing,and assembly.In a recent month the four departments incurred two shared indirect expenses.The amounts of the indirect expenses and the bases used to allocate them follow.(1)Use this information to allocate each of the two indirect expenses across the four departments using the tables provided below. Indirect Expense Cost Allocation Base Supervision \ 85,000 Number of employees Utilities and Insurance Square feet occupied Total Departmental data for the company's recent reporting period follow. Pepartrent Purchasing Human Resources Manufacturing Assermbly Total

A _____________________________ provides information for managers to use to evaluate the profitability or cost effectiveness of each department's activities.

A(n)_______________________ is a department whose manager is responsible for using the center's assets to generate income for the center.

Able Company has two operating (production)departments: Assembly and Fabricating.Assembly has 150 employees and occupies 44,000 square feet; Fabricating has 100 employees and occupies 36,000 square feet.Indirect factory expenses for the current period are as follows: Administration $ 80,000 Maintenance $100,000 Administration is allocated based on workers in each department; maintenance is allocated based on square footage.The total amount of indirect factory expenses that should be allocated to the Assembly Department for the current period is:

A report that accumulates the actual costs that a manager is responsible for and their budgeted amounts is a:

In the two-stage cost allocation,___________________ costs are allocated to operating departments,and the operating department costs are allocated to ________________.

Eclectic Furniture Company allocates its indirect salaries of $12,500 on the basis of sales.Determine the indirect salaries allocated to Departments 1 and 2 using the following information. Salaries allocated to Dept.1 _______________ Salaries allocated to Dept.2 _______________

The Milk Chocolate Division of Mmmm Foods,Inc.had the following operating results last year: Milk Chocolate expects identical operating results this year.The Milk Chocolate Division has the ability to produce and sell 200,000 pounds of chocolate annually.Assume that the Peanut Butter Division of Mmmm Foods wants to purchase an additional 20,000 pounds of chocolate from the Milk Chocolate Division.Assume that the Milk Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate.Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Milk Chocolate.Under these conditions,what amount per pound of chocolate would Milk Chocolate have to charge Peanut Butter in order to maintain its current profit?

A department's direct expenses can be entirely avoided if the department manager carefully controls and monitors operations.

Investment center managers are evaluated on their use of center assets to generate income.