Exam 21: Cost Allocation and Performance Measurement

Joint costs can be allocated either using a physical basis or a value basis.

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

A(n) _______________________ is a department whose manager is responsible for using the center's assets to generate income for the center.

Controllable costs are the same as direct costs.

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

Responsibility accounting performance reports:

What is the purpose of a departmental accounting system?

Departmental wage expenses are direct expenses of that department.

A cost center is a unit of a business that incurs costs but does not directly generate revenues. All of the following are considered cost centers except:

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.

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

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

Eleanor Reed, the manager of the Marinette Plant of the Wisconsin Company is responsible for all of the plant's costs except her own salary. There are two operating departments within the plant, Departments A and B. Each department has its own manager. There is also a maintenance department that provides services equally to the two operating departments. The following information is available. Department managers are responsible for the wages and supplies in their department. They are not responsible for their own salary. Building rent, utilities, and maintenance are allocated to each department based on square footage. Complete the responsibility accounting performance reports below that list costs controllable by the manager of Department A, the manager of Department B, and the manager of the Marinette plant.

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

Rent and maintenance expenses would most likely be allocated based on:

Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:

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.

For an investment center, the hurdle rate is:

A difficult problem in calculating the total costs and expenses of a department is:

Match the appropriate definition a through h with the following terms: