Exam 24: Cost Allocation and Responsibility Accounting

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It provides the following information for the year 2014. Calculate the profit margin ratio for the Industrial Division of the company.

Traditional costing systems employ multiple allocation rates, but an activity-based costing system uses only one rate for allocating manufacturing overhead.

In a balanced scorecard, which of the following is a key performance indicator of the financial perspective?

Brannon Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan consists of 20 separate parts. The direct material cost is $95 and each ceiling fan requires 2.5 hours of machine time to manufacture. There is no direct labor cost. Additional information is as follows: What is the total manufacturing cost per ceiling fan?

The primary objective in setting transfer prices is to achieve goal congruence by selecting a price that will maximize overall company profits.

The ROI (Return on Investment)formula focuses on the amount of operating income earned before other revenue/expense items, such as interest expense, by utilizing the average total assets employed for the year.

In many cases, the amount of the transfer price does not affect the overall company profits.

The payroll department of a manufacturing company is most likely to be a(n):

Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.

Activity-based costing refines the cost allocation process even more than the traditional allocation costing.

Which of the following is the correct formula for calculating return on investment?

Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. It provides the following information for the year 2014 Calculate the residual income for the Agriculture division.

Which of the following statements is correct regarding the activity-based costing system?

Cost center responsibility reports generally focus on the static budget variance.

Which of the following is the most appropriate cost driver for allocating the cost of warranty services?

Which of the following statements most accurately describes residual income?

Smaller variances signal that operations are close to target and do not require management's immediate attention.

The manager of a cost center is responsible for controlling costs and generating revenues of the company.

Operating income alone does not indicate how efficiently a segment is using its assets.

AAA Metal Bearings produces two sizes of metal bearings (sold by the crate)-standard and heavy. The standard bearings require $200 of direct materials per unit (per crate)and the heavy bearings require $245 of direct materials per unit. The operation is mechanized and there is no direct labor. Previously AAA used a single plant-wide allocation rate for manufacturing overhead, which was $1.55 per machine hour. Based on the single rate, gross profit was as follows: Although the data showed that the heavy bearings were more profitable than the standard bearings, the plant manager knew that the heavy bearings required much more processing in the metal fabrication phase than the standard bearings, and that this factor was not adequately reflected in the single allocation rate. He suspected that it was distorting the profit data. He suggested adopting an activity-based costing approach. Working together, the engineers and accountants identified the following three manufacturing activities, and broke down the annual overhead costs as shown below: Engineers believed that metal fabrication costs should be allocated by weight, and estimated that the plant processed 12,000 kilos of metal per year. Machine processing costs were correlated to machine hours, and the engineers estimated a total of 380,000 machine hours for the year. Packaging costs were the same for both types of products, and so they could be allocated simply by the number of units produced. The production plan provided for 4,000 units of standard and 1,000 units of heavy bearings to be produced during the year. Additional data on a per unit basis was as given below: Using the data above, calculate activity rates. Then, following the ABC methodology, calculate the production cost and gross profit for one unit of standard bearings. (Round your intermediate calculations to two decimal places).