Exam 21: Cost Allocation and Performance Measurement

Calculating return on total assets for an investment center is defined by the following formula for an investment center:

A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were: How much advertising expense should be allocated to each department?

General Chemical produced 10,000 gallons of Breon and 20,000 gallons of Baron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Breon if the value basis is used.

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. Salaries allocated to Dept. 1 _______________ Salaries allocated to Dept. 2 _______________

Controllable costs are the same as direct costs.

The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.

Responsibility accounting performance reports:

Return on investment is a useful measure to evaluate the performance of a cost center manager.

A college uses advisors who work with all students in all divisions of the college. The most useful allocation basis for the salaries of these employees would likely be

Naples operates a retail store and has two service departments and two operating departments, Shoes and Clothing. During the current year, the departments had the following direct expenses and occupied the flowing amount of floor space. The advertising department developed and aired 150 spots. Of these spots, 60 spots were for Shoes and 90 spots were for Clothing. The store sold $1,500,000 of merchandise during the year; $675,000 in Shoes and $825,000 in Clothing. Indirect expenses include rent, utilities, and insurance expense. Total indirect expenses of $220,000 are allocated to all departments. Prepare a departmental expense allocation spreadsheet for Naples. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) allocate the indirect expenses to each department on the basis of floor space occupied, (3) the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4) the administrative department's expenses based on the amount of sales. Complete the departmental expense allocation spreadsheet below. Provide supporting computations for the expense allocations below the spreadsheet.

Breon Beef Company uses the relative market value method of allocating joint costs in its production of beef products. Relevant information for the current period follows: The total joint cost for the current period was $43,000. How much of this cost should Breon Beef allocate to sirloin?

Departmental wage expenses are direct expenses of that department.

A ______________________ incurs costs without directly generating revenues.

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead): Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Mica and Plax, respectively is:

Regardless of the system used in departmental cost analysis:

Direct costs require allocation across departments.

Vaughn Co. operates three separate departments (A, B, C). The data below is provided for the current year: Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

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

A profit center:

Blower Company is divided into four departments. Departments A and B are service departments and Departments 1 and 2 are operating (production) departments. The services of the two service departments are used by the other departments as follows: Complete the following table: