Question 1

What is a cost center?

Accepted Answer

A cost center incurs costs without direc

Question 2

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

Accepted Answer

Responsibi

Question 3

An _______________________ is a department whose manager is responsible for using the center's assets to generate income for the center.

Accepted Answer

The answer of An _______________________ is a department whose manager...

Question 4

Jamesway Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year:
$\begin{array}{lrr}&\text { White } & \text { Grey } \
&\text { Division } & \text { Division }\\hline
\text { Sales (net) } & \$ 200,000 & \$ 400,000 \
\text { Salary expense } & 28,000 & 48,000 \
\text { Cost of goods sold } & 100,000 & 159,000
\end{array}$
The White Division occupies 20,000 square feet in the plant. The Grey Division occupies 30,000 square feet. Rent is an indirect expense and is allocated based on square footage. Rent expense for the year was $50,000.
-Grey Division's departmental income is:

Accepted Answer

A)  $163,000 
B)  $211,000 
C)  $241,000 
D)  $52,000 
E)  $173,000 
A)  $163,000 
B)  $211,000 
C)  $241,000 
D)  $52,000 
E)  $173,000

Question 5

A department that incurs costs without directly generating revenues is a:

Accepted Answer

A)  Service center. 
B)  Production center. 
C)  Profit center. 
D)  Cost center. 
E)  Performance center. 
A)  Service center. 
B)  Production center. 
C)  Profit center. 
D)  Cost center. 
E)  Performance center.

Question 6

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 7

Explain the difference between direct and indirect expenses in accounting for departments.

Accepted Answer

Direct expenses are readily traced to a

Question 8

The first three steps in preparing a departmental income statement are: (1) accumulate __________________ of the department, (2) allocate __________________ to the department, and (3) allocate _____________________ to the operating departments.

Accepted Answer

Direct expenses; ind

Question 9

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 10

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 11

Define an investment center. How are investment centers evaluated?

Accepted Answer

An investment center is a department who

Question 12

What is the balanced scorecard and how is it used?

Accepted Answer

The balanced scorecard is a system of pe

Question 13

What is the purpose of a responsibility accounting system?

Accepted Answer

A responsibility accounting sy

Question 14

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 15

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 16

In the preparation of departmental income statements, the preparer completes the following steps in the following order:

Accepted Answer

A)  Identify direct expenses; allocate indirect expenses; allocate service department expenses. 
B)  Identify indirect expenses; allocate direct expenses; allocate service department expenses. 
C)  Identify service department expenses; allocate direct expenses; allocate indirect expenses. 
D)  Identify direct expenses, allocate service department expenses, allocate indirect expenses. 
E)  Allocate all expenses. 
A)  Identify direct expenses; allocate indirect expenses; allocate service department expenses. 
B)  Identify indirect expenses; allocate direct expenses; allocate service department expenses. 
C)  Identify service department expenses; allocate direct expenses; allocate indirect expenses. 
D)  Identify direct expenses, allocate service department expenses, allocate indirect expenses. 
E)  Allocate all expenses.

Question 17

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.
$\begin{array}{|l|c|c|c|}
\hline & \begin{array}{c}
\text { Cooking } \
\text { Department }
\end{array} & \begin{array}{c}
\text { Churning } \
\text { Department }
\end{array} & \begin{array}{c}
\text { Freezing } \
\text { Department }
\end{array} \\hline \begin{array}{r}
\text { Number of } \
\text { employees }
\end{array} & \begin{array}{r}
2,940 \
\text { employees }
\end{array} & 4,900 \text { employees } & 1,960 \text { employees } \\hline \text { Square feet occupied } & 33,250 \mathrm{Sq} . \mathrm{Ft} . & 38,000 \mathrm{Sq} . \mathrm{Ft} & 23,750 \mathrm{Sq} . \mathrm{Ft} . \
\hline
\end{array}$
-Based on the above data, determine the maintenance cost allocated to each operating department of Ice House Industries, Inc.
$\begin{array}{|l|l|l|l|}
\hline \text { (A) } & \text { Cooking: } \$ 219,333 & \text { Churning: } \$ 219,333 & \text { Freezing: } \$ 219,333 \
\hline \text { (B) } & \text { Cooking: } \$ 230,300 & \text { Churning: } \$ 263,200 & \text { Freezing: } \$ 164,500 \\hline \text { (C) } & \text { Cooking: } \$ 33,250 & \text { Churning: } \$ 38,000 & \text { Freezing: } \$ 23,750 \
\hline \text { (D) } & \text { Cooking: } \$ 32,666 & \text { Churning: } \$ 32,666 & \text { Freezing: } \$ 32,666 \
\hline (E)&\text {  Cooking: } \$ 34,300 & \text { Churning: } \$ 39,200 & \text { Freezing: } \$ 24,500 \
\hline
\end{array}$

Accepted Answer

A)  A Above. 
B)  B Above. 
C)  C Above. 
D)  D Above. 
E)  E Above. 
A)  A Above. 
B)  B Above. 
C)  C Above. 
D)  D Above. 
E)  E Above.

Question 18

Data pertaining to a company's joint manufacturing process for the current period follows: 
$\begin{array}{cc}
&\text { Product } & \text { Product } \
&\text { A } & \text { B }\\text { Quantities produced }&200 \mathrm{lbs}&100 \mathrm{lbs}\\text { Processing cost after }\\text { products are separated }&\$1,1000&\$400\\text { Market value at point }\\text { of separation }&\$ 8 / \mathrm{lb.}&\$ 16 / \mathrm{lb.}
\end{array}$
What cost amount should be allocated to Product A for this period's $660 of joint costs on the basis of market value at the point of separation?

Accepted Answer

A)  $330.00 
B)  $440.00 
C)  $220.00 
D)  $194.12 
E)  $484.00 
A)  $330.00 
B)  $440.00 
C)  $220.00 
D)  $194.12 
E)  $484.00

Question 19

Indirect expenses should be allocated to departments based upon the benefits received by each department.

Accepted Answer

A) True 
 B)False

Question 20

A unit of a business that not only incurs costs, but also generates revenues, is called a:

Accepted Answer

A)  Performance center. 
B)  Profit center. 
C)  Cost center. 
D)  Responsibility center. 
E)  Expense center. 
A)  Performance center. 
B)  Profit center. 
C)  Cost center. 
D)  Responsibility center. 
E)  Expense center.

Exam 22: Decentralization and Performance Evaluation

What is a cost center?

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

An _______________________ is a department whose manager is responsible for using the center's assets to generate income for the center.

A department that incurs costs without directly generating revenues is a:

The portion of the $450 cost that should be allocated to Product A using the value basis of allocation is:

Explain the difference between direct and indirect expenses in accounting for departments.

The first three steps in preparing a departmental income statement are: (1) accumulate __________________ of the department, (2) allocate __________________ to the department, and (3) allocate _____________________ to the operating departments.

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?

Define an investment center. How are investment centers evaluated?

What is the balanced scorecard and how is it used?

What is the purpose of a responsibility accounting system?

The allocation bases for assigning indirect costs include:

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

In the preparation of departmental income statements, the preparer completes the following steps in the following order:

Indirect expenses should be allocated to departments based upon the benefits received by each department.

A unit of a business that not only incurs costs, but also generates revenues, is called a:

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 and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters

The first three steps in preparing a departmental income statement are: (1) accumulate of the department, (2) allocate to the department, and (3) allocate _____ to the operating departments.