Question 1

Advertising expense can be reasonably allocated to departments on the basis of sales.

Accepted Answer

A) True 
 B)False

Question 2

A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a(n):

Accepted Answer

A)  Performance report 
B)  Service report 
C)  Income statement 
D)  Balance sheet 
E)  Cost report 
A)  Performance report 
B)  Service report 
C)  Income statement 
D)  Balance sheet 
E)  Cost report

Question 3

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

Accepted Answer

A cost center incurs costs but does not

Question 4

A transfer price has no direct impact on a company's overall profits.

Accepted Answer

A) True 
 B)False

Question 5

Reference: 22_01
Joint products A and B are produced in a single operation from Material M. Three hundred gallons of Material M, costing $450, produced 200 gallons of Product A, selling for $2 per gallon, and 100 gallons of Product B, selling for $6 per gallon.
-The portion of the $450 cost that should be allocated to Product A using the value basis of allocation is:

Accepted Answer

A)  $0 
B)  $180 
C)  $225 
D)  $300 
E)  $425 
A)  $0 
B)  $180 
C)  $225 
D)  $300 
E)  $425

Question 6

Costs that the manager does not have the power to determine or strongly influence are:

Accepted Answer

A)  Variable costs 
B)  Uncontrollable costs 
C)  Indirect costs 
D)  Direct costs 
E)  Joint costs 
A)  Variable costs 
B)  Uncontrollable costs 
C)  Indirect costs 
D)  Direct costs 
E)  Joint costs

Question 7

A service department is usually evaluated as a profit center.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

While it is not always possible to avoid

Question 9

Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.

Accepted Answer

A) True 
 B)False

Question 10

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:
 $\begin{array}{lrrr}
&\text { Dept. } 1& \text { Dept. } 2 &\text { Combined }\
\text { Revenues from sales } & \$ 182,000 & \$ 78,000 & \$ 260,000 \
\text { Direct salaries } & 42,250 & 22,750 & 65,000
\end{array}$
 
Salaries allocated Dept.1 _______________
Salaries allocated to Dept.2 _______________

Accepted Answer

Dept.1: ($182,000/$260,000) x

Question 11

Controllable costs are the same as direct expenses.

Accepted Answer

A) True 
 B)False

Question 12

Under which of the following conditions is a market-based transfer price likely to be used?

Accepted Answer

A)  There is no excess capacity. 
B)  No market price exists. 
C)  Excess capacity exists. 
D)  Excess capacity exists and the market price covers fixed costs. 
E)  There is only an internal market for the item in question. 
A)  There is no excess capacity. 
B)  No market price exists. 
C)  Excess capacity exists. 
D)  Excess capacity exists and the market price covers fixed costs. 
E)  There is only an internal market for the item in question.

Question 13

Reference: 22_04
Ice House Industries, Inc. has three operating departments: Cooking, Churning, and Freezing. Indirect factory costs for the current period were Administrative $560,000 and Maintenance $98,000. Administrative costs are allocated to operating departments based on the number of workers and maintenance costs are allocated to operating departments based on square footage occupied.
 $$\begin{array} { | l | c | c | c | } 
\hline & \begin{array} { c } 
\text { Cooking } \
\text { Department }
\end{array} & \begin{array} { c } 
\text { Churning } \
\text { Department }
\end{array} &{ \begin{array} { c } 
\text { Freezing } \
\text { Department }
\end{array} } \
\hline \begin{array} { l } 
\text { Number of } \
\text { employees }
\end{array} & 2,940 \text { employees } & 4,900 \text { employees } & 1,960 \text { employees } \
\hline \text { Square feet occupied } & 33,250 \text { Sq. Ft. } & 38,000 \text { 5q. Ft } & 23,750 \text { Sq. Ft. } \
\hline
\end{array}$$
-Based on the above data,determine the administrative cost allocated to each operating department of Ice House Industries,Inc.

Accepted Answer

A)   
B)   
C)   
D) $\text { Cooking: } \$ 280,000 \quad \text { Churning: } \$ 112,000  \quad  \text { Freezing: } \$ 168,000$ 
E) $\text { Cooking: } \$ 219,333 \quad \text { Churning: } \$ 219,333  \quad  \text { Freezing: } \$ 219,332$ 
A)   
B)   
C)   
D) $\text { Cooking: } \$ 280,000 \quad \text { Churning: } \$ 112,000  \quad  \text { Freezing: } \$ 168,000$ 
E) $\text { Cooking: } \$ 219,333 \quad \text { Churning: } \$ 219,333  \quad  \text { Freezing: } \$ 219,332$

Question 14

A company manufactures two products,X and Y,from a single raw material called ZZ.ZZ is purchased in 55-gallon drums,and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y.X sells for $10 per gallon and Y sells for $30 per gallon.During the current period,the company used 400 drums of ZZ to manufacture X and Y.The cost of ZZ was $90 per drum.
Required:
a.If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced,how much of the total cost of the 400 drums should be charged to each product?
b.If the cost of ZZ is allocated to the X and Y products in proportion to their market values,how much of the total cost of the 400 drums should be charged to each product?
c.Which basis of allocating the cost is most likely to be used by the company?
Check one and briefly explain.
_______ The relative number of gallons of each product produced.
_______ The relative market values of each product at the point of separation.

Accepted Answer

Preliminary calculations:
Total joint co

Question 15

Which of the following would not appear on a responsibility accounting performance report?

Accepted Answer

A)  Actual costs for a period. 
B)  Variance from the budget. 
C)  Budgeted costs for a period. 
D)  Controllable costs. 
E)  Uncontrollable costs. 
A)  Actual costs for a period. 
B)  Variance from the budget. 
C)  Budgeted costs for a period. 
D)  Controllable costs. 
E)  Uncontrollable costs.

Question 16

The process of preparing departmental income statements starts with allocating service departments.

Accepted Answer

A) True 
 B)False

Question 17

The allocation bases for assigning indirect costs include:

Accepted Answer

A)  Only physical bases. 
B)  Only cost bases. 
C)  Only value bases. 
D)  Only unit bases. 
E)  Any appropriate and reasonable bases. 
A)  Only physical bases. 
B)  Only cost bases. 
C)  Only value bases. 
D)  Only unit bases. 
E)  Any appropriate and reasonable bases.

Question 18

Laurel and Hardy are managers of two product lines for Keaton Company.One of them is a candidate for promotion based on performance.Using the data below,determine who had the better performance.Detail your calculations and support your answer.
 $\begin{array}{lrr}
&\text { Laurel }&\text { Hardy }\ 
\text { Revenue } & \$ 412,000 & \$ 450,000 \
\text { Costs } & 380,000 & 411,000 \
\text { Average assets } & 400,000 & 600,000
\end{array}$

Accepted Answer

@#IMG-DLM&_TB6312_00_TB6312_00 Hardy has

Question 19

Which of the following is an example of a financial performance measure that would be found in a balanced scorecard?

Accepted Answer

A)  Percentage of on-time delivery. 
B)  Residual income. 
C)  Customer satisfaction. 
D)  Cycle time. 
E)  Employee turnover. 
A)  Percentage of on-time delivery. 
B)  Residual income. 
C)  Customer satisfaction. 
D)  Cycle time. 
E)  Employee turnover.

Question 20

An expense that does not require allocation between departments is a(n):

Accepted Answer

A)  Common expense. 
B)  Indirect expense. 
C)  Direct expense. 
D)  Administrative expense. 
E)  Overhead expense. 
A)  Common expense. 
B)  Indirect expense. 
C)  Direct expense. 
D)  Administrative expense. 
E)  Overhead expense.

Exam 22: Decentralization and Performance Measurement

Advertising expense can be reasonably allocated to departments on the basis of sales.

A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a(n):

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

A transfer price has no direct impact on a company's overall profits.

Costs that the manager does not have the power to determine or strongly influence are:

A service department is usually evaluated as a profit center.

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

Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.

Controllable costs are the same as direct expenses.

Under which of the following conditions is a market-based transfer price likely to be used?

Which of the following would not appear on a responsibility accounting performance report?

The process of preparing departmental income statements starts with allocating service departments.

The allocation bases for assigning indirect costs include:

Which of the following is an example of a financial performance measure that would be found in a balanced scorecard?

An expense that does not require allocation between departments is a(n):

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing

Activity-Based Costing and Analysis

Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Accounting With Special Journals

Time Value of Money

Investments and International Operations

Accounting for Partnerships

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