Exam 22: Decentralization and Performance Evaluation

An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a:

Controllable costs are the same as direct costs.

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

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. Cooking Department Churning Department Freezing Department Number of employees 2,940 employees 4,900 employees 1,960 employees Square feet occupied 33,250.. 38,000. 23,750.. -Based on the above data, determine the administrative cost allocated to each operating department of Ice House Industries, Inc. (A) $\text { Cooking: } \$ 168,000 \quad \text { Churning: \$280,000} \quad \text { Freezing: } \$ 112,000$ (B) $\text { Cooking: } \$ 186,666 \quad \text { Churning: \$186,666 } \quad \text { Freezing: } \$ 186,666$ (C) $\text { Cooking: } \$ 112,000 \quad \text { Churning: \$280,000 } \quad \text { Freezing: } \$ 168,000$ (D) $\text { Cooking: } \$ 280,000 \quad \text { Churning: \$112,000 } \quad \text { Freezing: } \$ 168,000$ (E) $\text { Cooking: } \$ 219,333 \quad \text { Churning: \$219,333 } \quad \text { Freezing: } \$ 219,333$

A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.

Burien, Inc. operates a retail store with two departments, A andB. Its departmental income statement for the current year follows: Burien allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales. Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200. Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.)

An accounting system that provides information that management can use to evaluate the performance of a department's manager is called a:

Renton 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: 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.

A ______________________ incurs costs without directly generating revenues.

The following data are available for the Cleaning Services Department of Amitol Co. Revenues \ 216,000 Cost of Sales 168,000 Expenses: Supplies-Direct 12,000 Salaries-Indirect Allocated 34,000 Rent-Direct 8,000 Rent-Indirect Allocated 4,500 Required: Calculate departmental contribution to overhead for the Cleaning Services Department, including the department's contribution as a percentage of revenues.

Which of the following is an example of a performance measure of internal business processes which would be found in a balanced scorecard?

The concepts of direct costs and controllable costs are essentially the same; also, indirect costs and uncontrollable costs are essentially the same.

Quarry Co. Smith Barney Revenue \ 412,000 \ 450,000 Costs 380,000 411,000 Average Assets 400,000 600,000 -Fred Smith and Joe Barney are managers of two product lines for Quarry Company. One of them is a candidate for promotion based on performance. Using the data above, which of the following is a true statement?

Describe the information found on a responsibility accounting performance report.

Expenses that are not easily associated with a specific department, and which are incurred for the benefit of more than one department, are:

A department can never be considered to be a profit center.

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

Investment center managers are responsible only for revenues and the costs of investment.

The salaries of employees who spend all their time working in one department are:

Departmental accounting and responsibility accounting are related.