Question 1

Investment center managers are evaluated on their use of center assets to generate income.

Accepted Answer

A) True 
 B)False  True

Question 2

What is the purpose of a responsibility accounting system?

Accepted Answer

A responsibility accounting system is used to control costs and expenses and evaluate managers' performances by assigning costs and expenses to the managers responsible for controlling them.

Question 3

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; indirect expenses; service department expenses

Question 4

What is a cost center?

Accepted Answer

A cost center incurs costs without direc

Question 5

A sawmill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. Type 1 - 400,000 bd. ft. priced to sell at $0.12 per bd. ft.
Type 2 - 400,000 bd. ft. priced to sell at $0.06 per bd. ft.
Type 3 - 200,000 bd. ft. priced to sell at $0.04 per bd. ft.

Accepted Answer

A)  $16,000; $16,000. 
B)  $13,333; $4,444. 
C)  $40,000; $24,000. 
D)  $24,000; $12,000. 
E)  $24,000; $8,000. 
A)  $16,000; $16,000. 
B)  $13,333; $4,444. 
C)  $40,000; $24,000. 
D)  $24,000; $12,000. 
E)  $24,000; $8,000.

Question 6

Define joint costs and explain how joint costs can be allocated.

Accepted Answer

Joint costs are costs incurred to produc

Question 7

A _______________________ incurs costs and generates revenues.

Accepted Answer

The answer of A _______________________ incurs costs and generates revenues....

Question 8

The Footwear Department of Lee's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department's contribution to overhead as a percent of sales is:

Accepted Answer

A)  7.8%. 
B)  14.9%. 
C)  29.5%. 
D)  66.7%. 
E)  85.4%. 
A)  7.8%. 
B)  14.9%. 
C)  29.5%. 
D)  66.7%. 
E)  85.4%.

Question 9

A company produces 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 $10.00 per gallon and Y sells for $30.00 per gallon. During the current period, the company used 400 drums of ZZ to produce X and Y. The cost of ZZ was $90 per drum.
Required:
(1) 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?
(2) 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?
(3) 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

The answer of A company produces two products, X and...

Question 10

The following is taken from Ames Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor costs, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept.2 using activity-based costing.

Accepted Answer

A)  $18,720. 
B)  $12,930. 
C)  $13,400. 
D)  $19,190. 
E)  $19,440. 
A)  $18,720. 
B)  $12,930. 
C)  $13,400. 
D)  $19,190. 
E)  $19,440.

Question 11

Camden Properties is developing a golf course subdivision that includes 230 home lots; 150 lots are golf course lots and will sell for $125,000 each; 80 are street frontage lots and will sell for $78,125. The developer acquired the land for $5,800,000 and spent another $2,300,000 on street and utilities improvement. Assign the joint land and improvement costs to the lots using the value basis and determine the average cost per lot.

Accepted Answer

The answer of Camden Properties is developing a golf course...

Question 12

The amount by which a department's revenues exceed its direct expenses is:

Accepted Answer

A)  Net sales. 
B)  Gross profit. 
C)  Departmental profit. 
D)  Contribution margin. 
E)  Departmental contribution to overhead. 
A)  Net sales. 
B)  Gross profit. 
C)  Departmental profit. 
D)  Contribution margin. 
E)  Departmental contribution to overhead.

Question 13

Generally, it does not matter how cost allocations are designed and explained, because most managers do not care whether the allocations appear to be fair or not.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

Describe the two-stage allocation of overhead costs.

Accepted Answer

The two stages are: (1) service departme

Question 16

The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Purchasing department expense to be allocated to Assembly.

Accepted Answer

A)  $6,400. 
B)  $9,900. 
C)  $8,100. 
D)  $14,400. 
E)  $25,600. 
A)  $6,400. 
B)  $9,900. 
C)  $8,100. 
D)  $14,400. 
E)  $25,600.

Question 17

Burien, Inc., operates a retail store with two departments, A and
B. 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.)

Accepted Answer

The answer of Burien, Inc., operates a retail store with...

Question 18

Departmental contribution to overhead is the same as gross profit generated by that department.

Accepted Answer

A) True 
 B)False

Question 19

A responsibility accounting system:

Accepted Answer

A)  Is designed to measure the performance of managers in terms of controllable costs. 
B)  Assigns responsibility for costs to the appropriate managerial level that controls those costs. 
C)  Should not hold a manager responsible for costs over which the manager has no influence. 
D)  Can be applied at any level of an organization. 
E)  All of these. 
A)  Is designed to measure the performance of managers in terms of controllable costs. 
B)  Assigns responsibility for costs to the appropriate managerial level that controls those costs. 
C)  Should not hold a manager responsible for costs over which the manager has no influence. 
D)  Can be applied at any level of an organization. 
E)  All of these.

Question 20

A factor that causes the cost of an activity to go up or down is a(n):

Accepted Answer

A)  Direct factor. 
B)  Indirect factor. 
C)  Cost driver. 
D)  Product cost. 
E)  Contribution factor. 
A)  Direct factor. 
B)  Indirect factor. 
C)  Cost driver. 
D)  Product cost. 
E)  Contribution factor.

Investment center managers are evaluated on their use of center assets to generate income.

What is the purpose of a responsibility accounting system?

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.

What is a cost center?

Define joint costs and explain how joint costs can be allocated.

A _______________________ incurs costs and generates revenues.

The Footwear Department of Lee's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department's contribution to overhead as a percent of sales is:

The amount by which a department's revenues exceed its direct expenses is:

Generally, it does not matter how cost allocations are designed and explained, because most managers do not care whether the allocations appear to be fair or not.

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

Describe the two-stage allocation of overhead costs.

Departmental contribution to overhead is the same as gross profit generated by that department.

A responsibility accounting system:

A factor that causes the cost of an activity to go up or down is a(n):

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

Filters

Exam 21: Cost Allocation and Performance Measurement

Investment center managers are evaluated on their use of center assets to generate income.

What is the purpose of a responsibility accounting system?

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.

What is a cost center?

Define joint costs and explain how joint costs can be allocated.

A _______________________ incurs costs and generates revenues.

The Footwear Department of Lee's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department's contribution to overhead as a percent of sales is:

The amount by which a department's revenues exceed its direct expenses is:

Generally, it does not matter how cost allocations are designed and explained, because most managers do not care whether the allocations appear to be fair or not.

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

Describe the two-stage allocation of overhead costs.

Departmental contribution to overhead is the same as gross profit generated by that department.

A responsibility accounting system:

A factor that causes the cost of an activity to go up or down is a(n):

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

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.