Exam 9: Performance Measurement and Responsibility Accounting

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Investment center is another name for profit center.

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________ are costs incurred to produce or purchase two or more products at the same time.

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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: 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 Drilling for the current period is: The amount of the total office expenses that should be allocated to Drilling for the current period is:

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Holo Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Compute the division's return on investment:

(Multiple Choice)
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Boiano Corp. operates a retail store and has two service departments and two operating departments, Hardware and Automotive. During the current year, the departments had the following direct expenses and occupied the following amount of floor space. Department Direct Expenses Square Feet Advertising \ 50,000 750 Administrative 100,000 1,500 Hardware 150,000 3,000 Automotive 200,000 9,750 The advertising department developed and aired 150 spots. Of these spots, 60 spots were for Hardware and 90 spots were for Automotive. The store sold $1,500,000 of merchandise during the year; $675,000 in Hardware and $825,000 in Automotive. Indirect expenses include rent, utilities, and insurance expense. Total indirect expenses of $220,000 are allocated to all departments. Prepare a departmental expense allocation spreadsheet for Boiano. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) allocate the indirect expenses to each department on the basis of floor space occupied, (3) the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4) the administrative department's expenses based on the amount of sales. Complete the departmental expense allocation spreadsheet below. Provide supporting computations for the expense allocations below the spreadsheet.

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In a firm that manufactures clothing, the department that is responsible for actually assembling the garments could best be described as a(n):

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How do companies decide what allocation bases to use to allocate indirect costs to departments?

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What is the main difference between a cost center and a profit center?

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Division P of Launch Corporation has the capacity for making 75,000 wheel sets per year and regularly sells 60,000 each year on the outside market. The regular sales price is $100 per wheel set, and the variable production cost per unit is $65. Division Q of Launch Corporation currently buys 30,000 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of $90 per wheel set. If Division Q were to buy the 30,000 wheel sets it needs annually from Division P at $87 per wheel set, the change in annual net operating income for the company as a whole, compared to what it is currently, would be:

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Which of the following is not true regarding a responsibility accounting system?

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Nesbit Co. has two operating (production) departments supported by a number of service departments. The following information was collected for a recent period: Nesbit Co. has two operating (production) departments supported by a number of service departments. The following information was collected for a recent period:    Indirect costs are allocated as follows: salaries on the basis of sales, office expenses on the basis of the number of employees, and all other costs on the basis of square footage. Additional information about the production departments follows: Square Number of Footage Employees Machining 14,535 78 Assembly 4,845 52 Sales for the Machining Department are $724,404 and sales for the Assembly Department are $356,796. Determine the departmental contribution to overhead and the departmental net income for each production department. Indirect costs are allocated as follows: salaries on the basis of sales, office expenses on the basis of the number of employees, and all other costs on the basis of square footage. Additional information about the production departments follows: Square Number of Footage Employees Machining 14,535 78 Assembly 4,845 52 Sales for the Machining Department are $724,404 and sales for the Assembly Department are $356,796. Determine the departmental contribution to overhead and the departmental net income for each production department.

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Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of $3,500,000; investment center income $610,000; a target income of 12% of average invested assets. The residual income for the division is:

(Multiple Choice)
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The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. 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 Purchasing department expense to be allocated to Fabrication. Purchasing Maintenance Fabncation Assembly Operating costs \3 2,000 \1 8,000 \9 6,000 \6 2,000 No. of purchase orders 16 4 Sq. ft. of space 3,300 2,700

(Multiple Choice)
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In a responsibility accounting system:

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A ________ accumulates and reports costs and expenses that a manager is responsible for, including budgeted amounts.

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Investment center managers are typically evaluated using performance measures that combine income and assets.

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Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:   Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A? Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A?

(Multiple Choice)
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A retail store has three departments, S, T, and U, and does general advertising that benefits all departments. Advertising expense totaled $50,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department T based on departmental sales. Departinent S \1 10,000 Departrnent T \2 13,750 Departrnent U \1 51,250 Total \4 75,000

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The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.

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The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

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