Question 1

A department that is responsible for maximizing revenues is known as a profit center.

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

The answer of Renton Co. has two operating (production) departments...

Question 3

For an investment center, the hurdle rate is:

Accepted Answer

A)  The cost of obtaining financing. 
B)  The desired return on investments. 
C)  The difference between the projected rate and the earned rate. 
D)  Not evaluated in determining the performance of an investment center. 
E)  Not important to management. 
A)  The cost of obtaining financing. 
B)  The desired return on investments. 
C)  The difference between the projected rate and the earned rate. 
D)  Not evaluated in determining the performance of an investment center. 
E)  Not important to management.

Question 4

A responsibility accounting performance report reports:

Accepted Answer

A)  Only actual costs. 
B)  Only budgeted costs. 
C)  Both actual costs and budgeted costs. 
D)  Only direct costs. 
E)  Only indirect costs. 
A)  Only actual costs. 
B)  Only budgeted costs. 
C)  Both actual costs and budgeted costs. 
D)  Only direct costs. 
E)  Only indirect costs.

Question 5

Jamesway Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year:   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. Compute departmental income for the White and Grey Divisions, respectively.

Accepted Answer

A)  $52,000; $163,000. 
B)  $172,000; $352,000. 
C)  $72,000; $163,000. 
D)  $72,000; $193,000. 
E)  $100,000; $241,000. 
A)  $52,000; $163,000. 
B)  $172,000; $352,000. 
C)  $72,000; $163,000. 
D)  $72,000; $193,000. 
E)  $100,000; $241,000.

Question 6

Dresden, Inc. has four departments. Information about these departments follows is listed below. If allocated maintenance cost is based on floor space occupied by each, compute the amount of maintenance cost allocated to the Cutting Department.

Accepted Answer

A)  $2,769. 
B)  $3,000. 
C)  $3,724. 
D)  $6,000. 
E)  $18,000. 
A)  $2,769. 
B)  $3,000. 
C)  $3,724. 
D)  $6,000. 
E)  $18,000.

Question 7

An activity-based cost allocation system:

Accepted Answer

A)  Is one form of a direct or variable costing system. 
B)  Does not provide total unit cost data. 
C)  Traces costs to products on the basis of activities performed on them. 
D)  Does not provide for the allocation of any cost to products that cannot be directly attributable to those products. 
E)  Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods. 
A)  Is one form of a direct or variable costing system. 
B)  Does not provide total unit cost data. 
C)  Traces costs to products on the basis of activities performed on them. 
D)  Does not provide for the allocation of any cost to products that cannot be directly attributable to those products. 
E)  Does not involve the level of detail and the number of allocations that companies make with traditional allocation methods.

Question 8

Describe the information found on a responsibility accounting performance report.

Accepted Answer

A responsibility accounting pe

Question 9

Why would a firm use activity-based costing (ABC) rather than traditional two-stage methods of cost allocation for overhead?

Accepted Answer

ABC provides a potentially gre

Question 10

Traditional two-stage cost allocation means that indirect costs are first allocated to both operating and service departments, then operating department costs are allocated to service departments.

Accepted Answer

A) True 
 B)False

Question 11

In a responsibility accounting system:

Accepted Answer

A)  Controllable costs are assigned to managers who are responsible for them. 
B)  Each accounting report contains all items allocated to a responsibility center. 
C)  Organized and clear lines of authority and responsibility are only incidental. 
D)  All managers at a given level have equal authority and responsibility. 
E)  All of these. 
A)  Controllable costs are assigned to managers who are responsible for them. 
B)  Each accounting report contains all items allocated to a responsibility center. 
C)  Organized and clear lines of authority and responsibility are only incidental. 
D)  All managers at a given level have equal authority and responsibility. 
E)  All of these.

Question 12

White Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period:   The total cost of operating the Milling Department for the current period is:

Accepted Answer

A)  $14,280. 
B)  $15,912. 
C)  $76,500. 
D)  $90,780. 
E)  $92,412. 
A)  $14,280. 
B)  $15,912. 
C)  $76,500. 
D)  $90,780. 
E)  $92,412.

Question 13

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

Accepted Answer

A)  Fixed expenses. 
B)  Indirect expenses. 
C)  Direct expenses. 
D)  Uncontrollable expenses. 
E)  Variable expenses. 
A)  Fixed expenses. 
B)  Indirect expenses. 
C)  Direct expenses. 
D)  Uncontrollable expenses. 
E)  Variable expenses.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:

Accepted Answer

A)  8%. 
B)  40%. 
C)  20%. 
D)  30%. 
E)  12%. 
A)  8%. 
B)  40%. 
C)  20%. 
D)  30%. 
E)  12%.

Question 16

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on assets:

Accepted Answer

A)  30.3%. 
B)  23.6%. 
C)  13.3%. 
D)  10.4%. 
E)  14.7%. 
A)  30.3%. 
B)  23.6%. 
C)  13.3%. 
D)  10.4%. 
E)  14.7%.

Question 17

A company pays $15,000 per period to rent a small building that has 10,000 square feet of space. This cost is allocated to the company's three departments on the basis of the amount and value of the space occupied by each. Department One occupies 2,000 square feet of ground-floor space, Department Two occupies 3,000 square feet of ground-floor space, and Department Three occupies 5,000 square feet of second-floor space. If rents for comparable floor space in the neighborhood average $2.20 per square foot for ground-floor space and $1.10 per square foot for second-floor space and the rent is allocated based on the total value of the space, Department One should be charged rent expense for the period of:

Accepted Answer

A)  $4,400. 
B)  $4,000. 
C)  $3,000. 
D)  $2,200. 
E)  $2,000. 
A)  $4,400. 
B)  $4,000. 
C)  $3,000. 
D)  $2,200. 
E)  $2,000.

Question 18

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

Accepted Answer

A) True 
 B)False

Question 19

What is the primary purpose for using a responsibility accounting system?

Accepted Answer

A responsibility accounting system is de

Question 20

Outdoor Sports, Inc., produces two types of skis, downhill skis and cross country skis. Product and production information about the two items is shown below:   Required:
1. If Outdoor Sports uses the traditional two-stage method of allocating overhead costs based on direct labor hours, what is the amount of indirect costs per set of skis for each of the two types of skis?
2. If Outdoor Sports uses activity based costing, what is the total amount of indirect costs per set of skis for each of the two types of skis? Assume that depreciation is allocated based on machine hours, setup costs based on the number of setups, and miscellaneous costs based on the number of direct labor hours.

Accepted Answer

The answer of Outdoor Sports, Inc., produces two types of...

Exam 21: Cost Allocation and Performance Measurement

A department that is responsible for maximizing revenues is known as a profit center.

For an investment center, the hurdle rate is:

A responsibility accounting performance report reports:

Dresden, Inc. has four departments. Information about these departments follows is listed below. If allocated maintenance cost is based on floor space occupied by each, compute the amount of maintenance cost allocated to the Cutting Department.

An activity-based cost allocation system:

Describe the information found on a responsibility accounting performance report.

Why would a firm use activity-based costing (ABC) rather than traditional two-stage methods of cost allocation for overhead?

Traditional two-stage cost allocation means that indirect costs are first allocated to both operating and service departments, then operating department costs are allocated to service departments.

In a responsibility accounting system:

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

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

Mach Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 1's contribution to overhead as a percent of sales is:

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Compute the division's return on assets:

An activity-based costing system usually involves a fewer number of allocations compared with a traditional cost allocation system.

What is the primary purpose for using a responsibility accounting system?

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

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