Powers,Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $25,500.Additional estimated information is given below. \[\begin{array} { | l | r | r | } \hline & \text { Totes } & \text { Satchels } \\ \hline \text { Direct materials cost per unit } & \$ 32 & \$ 44 \\ \hline \text { Direct labor cost per unit } & \$ 55 & \$ 62 \\ \hline \text { Number of units } & 540 & 350 \\ \hline \end{array}\] Calculate the amount of overhead to be allocated to Satchels,if the actual units produced and direct labor costs equal the estimated amounts.(Round any percentages to two decimal places and your final answer to the nearest dollar.)

A) $464 B) $14,734 C) $10,765 D) $21,700 A) $464 B) $14,734 C) $10,765 D) $21,700

Crystal Company,a manufacturer of office supplies,provides the following financial information: \[\begin{array} { | l | r | r | } \hline & \text { Pen Division } & \text { Pencil Division } \\ \hline \text { Operating income } & \$ 80,000 & \$ 30,000 \\ \hline \text { Net sales } & \$ 450,000 & \$ 175,000 \\ \hline \text { Total assets at Jan. 1 } & \$ 580,000 & \$ 350,000 \\ \hline \text { Total assets at Dec .31 } & \$ 700,000 & \$ 275,000 \\ \hline \end{array}\] Calculate the return on investment for the Pencil Division.(Round your answer to two decimal places.)

A) 12.50% B) 9.60% C) 8.57% D) 10.91% A) 12.50% B) 9.60% C) 8.57% D) 10.91%

Exam 24: Cost Allocation and Responsibility Accounting

The following is divisional information for Falcon Enterprises: East Division West Division Operating income \ 250,000 \ 200,000 Net sales 2,225,000 1,575,000 Total assets at Jan. 1 1,500,000 840,000 Total assets at Dec .31 1,200,000 1,000,000 The target rate of return is 12% for the East Division and is 10% for the West Division. Compute residual income for each division.

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(Essay)

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Question 1

Correct Answer:

Verified

Average assets: (Beginning assets + Ending assets)/ 2
$\begin{aligned}\text { East Division } & = ( \$ 1,500,000 + \$ 1,200,000 ) / 2 \\& = \$ 2,700,000 / 2 \\& = \$ 1,350,000\end{aligned}$ $\begin{aligned}\text { West Division } & = ( \$ 840,000 + \$ 1,000,000 ) / 2 \\& = \$ 1,840,000 / 2 \\& = \$ 920,000\end{aligned}$ Minimum acceptable operating income = Average assets × Target rate of return
$\begin{array} { ll } \text {East Division}&= \$ 1,350,000 \times 0.12 \\&= \$ 162,000\end{array}$ $\begin{aligned}\text { West Division } & = \$ 920,000 \times 0.10 \\& = \$ 92,000\end{aligned}$ $\text { Residual income = Operating income - Minimum acceptable operating income }$ $\text { East Division } \quad = \$ 250,000 - \$ 162,000 = \$88, 000$ $\text { West Division } = \$ 200,000 - \$ 92,000 = \$ 108 , 000$

Communicating top management's expectations to segment managers improves goal congruence.

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(True/False)

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Question 2

Correct Answer:

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True

In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.

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(True/False)

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Question 3

Correct Answer:

Verified

True

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

(Multiple Choice)

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Question 4

Which of the following managers is likely to have the least amount of responsibilities?

(Multiple Choice)

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Question 5

List and briefly discuss the two limitations of financial performance measures.

(Essay)

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Question 6

The transfer price should be an amount between the market price and the variable cost.

(True/False)

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Question 7

Which of the following is a key performance indicator of the financial perspective in a balanced scorecard?

(Multiple Choice)

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Question 8

If upper management uses a short time frame to calculate ROI and RI,division managers have an incentive to take actions that will lead to an immediate increase in these measures.

(True/False)

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Question 9

Companies with diverse products can obtain better costing information using multiple departmental rates rather than using activity-based costing.

(True/False)

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Question 10

Which of the following statements is true?

(Multiple Choice)

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Question 11

The number of inspections,number of service calls and number of batches are all examples of ________.

(Multiple Choice)

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Question 12

List the primary goals of performance evaluation systems.

(Essay)

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Question 13

Archid,Inc.,a manufacturer of spare parts,has two production departments-Assembling and Packaging.The Assembling department is mechanized,while the Packaging department is labor oriented.Estimated manufacturing overhead costs for the year were $17,700,000 for Assembling and $10,000,000 for Packaging.Calculate the department predetermined overhead allocation rates for the Assembling and Packaging departments,respectively,if the total estimated machine hours were 50,000 and labor hours were 22,000 for the year.(Round your answer to the nearest cent.)

(Multiple Choice)

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Question 14

Which of the following is a not a decision that management must make before calculating ROI and RI?

(Multiple Choice)

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Question 15

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

(True/False)

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Question 16

Which would be an appropriate cost driver for the shipping and receiving activity?

(Multiple Choice)

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Question 17

Powers,Inc.manufactures two kinds of bags-totes and satchels.The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base.Estimated overhead costs for the year are $25,500.Additional estimated information is given below. Totes Satchels Direct materials cost per unit \ 32 \ 44 Direct labor cost per unit \ 55 \ 62 Number of units 540 350 Calculate the amount of overhead to be allocated to Satchels,if the actual units produced and direct labor costs equal the estimated amounts.(Round any percentages to two decimal places and your final answer to the nearest dollar.)

(Multiple Choice)

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Question 18

Crystal Company,a manufacturer of office supplies,provides the following financial information: Pen Division Pencil Division Operating income \ 80,000 \ 30,000 Net sales \ 450,000 \ 175,000 Total assets at Jan. 1 \ 580,000 \ 350,000 Total assets at Dec .31 \ 700,000 \ 275,000 Calculate the return on investment for the Pencil Division.(Round your answer to two decimal places.)

(Multiple Choice)

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Question 19

Why is using multiple predetermined overhead allocation rates more accurate than using a single plantwide allocation rate?

(Essay)

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Question 20

Communicating top management's expectations to segment managers improves goal congruence.

In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.

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

Which of the following managers is likely to have the least amount of responsibilities?

List and briefly discuss the two limitations of financial performance measures.

The transfer price should be an amount between the market price and the variable cost.

Which of the following is a key performance indicator of the financial perspective in a balanced scorecard?

If upper management uses a short time frame to calculate ROI and RI,division managers have an incentive to take actions that will lead to an immediate increase in these measures.

Companies with diverse products can obtain better costing information using multiple departmental rates rather than using activity-based costing.

Which of the following statements is true?

The number of inspections,number of service calls and number of batches are all examples of ________.

List the primary goals of performance evaluation systems.

Which of the following is a not a decision that management must make before calculating ROI and RI?

The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.

Which would be an appropriate cost driver for the shipping and receiving activity?

Why is using multiple predetermined overhead allocation rates more accurate than using a single plantwide allocation rate?

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Short-Term Business Decisions

Capital Investment Decisions

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