Deck 22: Decentralization and Performance Evaluation

Question

Evaluation of the performance of a department involves only financial measures.

Use Space or

to flip the card.

Question

Advertising expense can be reasonably allocated to departments on the basis of sales.

Question

Responsibility performance reports usually compare actual costs to the budgeted costs amounts.

Question

Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.

Question

Direct costs must be allocated across departments.

Question

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

Question

The price that should be used to record transfers between divisions in the same company is called the divisional price.

Question

Uncontrollable costs would continue even if a department were eliminated.

Question

Departmental wage expenses are direct expenses of that department.

Question

A service department is usually evaluated as a profit center.

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Departmental accounting and responsibility accounting are related.

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A department can never be considered to be a profit center.

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Expense allocations cannot always avoid some arbitrariness.

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Evaluation of the performance of managers of profit centers assumes that the managers can control or influence both costs and revenue generation.

Question

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

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Controllable costs are the same as direct costs.

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A cost center does not directly generate revenues.

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A department's direct expenses can be entirely avoided if the department manager carefully controls and monitors operations.

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

Question

A transfer price has no direct impact on a company's overall profits.

Question

A profit center:

A) Incurs costs, but does not directly generate revenues.
B) Incurs costs and directly generates revenues.
C) Has a manager who is evaluated solely on efficiency in controlling costs.
D) Incurs only indirect costs and directly generates revenues.
E) Incurs only indirect costs and generates revenues.

Question

Joint costs are a group of several costs incurred in producing or purchasing a single product.

Question

A cost center is a unit of a business that incurs costs but does not directly generate revenues. Which of the following would definitely not be considered a cost center?

A) Accounting department.
B) Purchasing department.
C) Research department.
D) Advertising department.
E) Pharmacy in a grocery store.

Question

Expenses that are easily traced and assigned to a specific department because they are incurred for the sole benefit of that department are called:

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

Question

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

Question

Regardless of the system used in departmental cost analysis:

A) Direct costs are allocated, indirect costs are not.
B) Indirect costs are allocated, direct costs are not.
C) Both direct and indirect costs are allocated.
D) Neither direct nor indirect costs are allocated.
E) Total departmental costs will always be the same.

Question

Investment center managers are responsible only for revenues and the costs of investment.

Question

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

A) Common expense.
B) Indirect expense.
C) Direct expense.
D) Administrative expense.
E) Overhead expense.

Question

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

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

Question

An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a:

A) Departmental accounting system.
B) Cost accounting system.
C) Service accounting system.
D) Revenue accounting system.
E) Standard accounting system.

Question

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

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

Question

A useful measure used to evaluate the manager of an investment center is return on total costs for the investment center.

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When a company has no excess capacity, the use of cost-based transfer pricing is preferred.

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Departmental contribution to overhead is the amount of revenues for that department less its direct expenses.

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Contribution to overhead generated by a department is the same as gross profit generated by that department.

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

Question

A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.

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Return on total assets for a cost center is a useful measure to evaluate the cost center manager.

Question

In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring the joint cost.

Question

Which of the following is most likely to be considered a profit center?

A) An individual retail store in a large chain.
B) The grocery department of a Wal-Mart Supercenter or Target Superstore.
C) The maintenance department of a large retail operation.
D) The personnel office of a business.
E) A stand-alone eye clinic.

Question

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

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

Question

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

A) Determining the gross profit ratio.
B) Assigning direct costs to the department.
C) Assigning indirect expenses to the department.
D) Determining the amount of sales of the department.
E) Determining the direct expenses of the department.

Question

A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a(n):

A) Performance report.
B) Service report.
C) Income statement.
D) Balance sheet.
E) Cost report.

Question

The salaries of employees who spend all their time working in one department are:

A) Variable expenses.
B) Indirect expenses.
C) Direct expenses.
D) Responsibility expenses.
E) Unavoidable expenses.

Question

An accounting system that provides information that management can use to evaluate the performance of a department's manager is called a:

A) Cost accounting system.
B) Managerial accounting system.
C) Responsibility accounting system.
D) Financial accounting system.
E) Activity-based accounting system.

Question

A responsibility accounting performance report reports:

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

Question

Costs that the manager has the power to determine or at least strongly influence are called:

A) Uncontrollable costs.
B) Controllable costs.
C) Joint costs.
D) Direct costs.
E) Indirect costs.

Question

Responsibility account performance reports:

A) Become more detailed at higher levels of management.
B) Become less detailed at higher levels of management.
C) Are equally detailed at all levels of management.
D) Are useful in any format.
E) Are irrelevant.

Question

In a responsibility accounting system:

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) Control over costs belongs only to the top level of management.

Question

Which of the following would not appear on a responsibility accounting performance report?

A) Actual costs for a period.
B) Variance from the budget.
C) Budgeted costs for a period.
D) Controllable costs.
E) Uncontrollable costs.

Question

The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:

A) Floor space of each department.
B) Relative number of items each department had on sale.
C) Number of customers to enter each department.
D) An equal amount of cost for each department.
E) Total sales of each department.

Question

Under which of the following conditions is a market-based transfer price likely to be used?

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

Allocations of joint product costs can be based on the relative market values of the products:

A) And never on the relative physical quantities of the products.
B) Plus an adjustment for future excess margins.
C) And not on any other basis.
D) At the time the products are separated.
E) Only if the products contain both direct and indirect costs.

Question

A responsibility accounting system:

A) Is designed to measure the performance of managers in terms of uncontrollable costs.
B) Assigns responsibility for costs to the top managerial level.
C) Is designed to hold a manager responsible for costs over which the manager has no influence.
D) Can be applied at any level of an organization.
E) Is well suited to work in an environment without clear lines of responsibility and authority.

Question

The most useful evaluation of a manager's cost performance is based on:

A) Controllable costs.
B) Contribution percentages.
C) Departmental contributions to overhead.
D) Fixed expenses.
E) Direct costs.

Question

The allocation bases for assigning indirect costs include:

A) Only physical bases.
B) Only cost bases.
C) Only value bases.
D) Only unit bases.
E) Any appropriate and reasonable bases.

Question

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

A) A payroll clerk.
B) A cost center manager.
C) A production line worker.
D) A maintenance worker.
E) A graphic designer.

Question

Costs that the manager does not have the power to determine or at least strongly influence are:

A) Variable costs.
B) Uncontrollable costs.
C) Indirect costs.
D) Direct costs.
E) Joint costs.

Question

A single cost incurred in producing or purchasing two or more essentially different products is a(n):

A) Product cost.
B) Incremental cost.
C) Differential cost.
D) Joint cost.
E) Fixed cost.

Question

A report that specifies the expected and actual costs under the control of a manager is a:

A) Segmental accounting report.
B) Managerial cost report.
C) Controllable expense report.
D) Departmental accounting report.
E) Responsibility accounting report.

Question

Which of the following is an example of a financial performance measure which would be found in a balanced scorecard?

A) Percentage of sales from new customers
B) Money spent on employee training programs
C) Product costs
D) Return on Investment
E) Money spent on research and development

Question

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:
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.
$\text { Type 1 } \quad \text { Type 2 }$
(A) $\$ 16,000 \quad \$ 16,000$
(B) $\$ 13,333 \quad \$ 4,444$
(C) $\$ 40,000 \quad \$ 24,000$
(D) $\$ 24,000 \quad \$ 12,000$
(E) $\$ 24,000 \quad \$ 8,000$
How much cost should be allocated to Type 1 and Type 2, respectively?

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

Question

A dairy allocates the cost of unprocessed milk to the production of milk, cream, butter and cheese. For the current period, unprocessed milk was purchased for $240,000, and the following quantities of product and sales revenues were produced.
$\begin{array}{lrr}&\text { Pounds }\\\text { Product }& \text { Price per }&\text { Pounds }\\\text { Milk } & 100,000 & \$ 0.90 \\\text { Cheese } & 50,000 & 2.20 \\\text { Butter } & 20,000 & 1.00 \\\text { Cream } & 10,000 & 3.00\end{array}$
How much of the $240,000 cost should be allocated to milk?

A) $0
B) $86,400
C) $90,000
D) $133,333
E) $240,000

Question

If the $450 cost of the 300 gallons of Material M were to be allocated to the joint products in proportion to the number of gallons of each product produced, Product A's share would be:

A) $0
B) $180
C) $225
D) $300
E) $450

Question

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.
$\begin{array}{|l|l|l|l|}\hline \text { (A) } & \text { Cooking: } \$ 219,333 & \text { Churning: } \$ 219,333 & \text { Freezing: } \$ 219,333 \\\hline \text { (B) } & \text { Cooking: } \$ 230,300 & \text { Churning: } \$ 263,200 & \text { Freezing: } \$ 164,500 \\\hline \text { (C) } & \text { Cooking: } \$ 33,250 & \text { Churning: } \$ 38,000 & \text { Freezing: } \$ 23,750 \\\hline \text { (D) } & \text { Cooking: } \$ 32,666 & \text { Churning: } \$ 32,666 & \text { Freezing: } \$ 32,666 \\\hline (E)&\text { Cooking: } \$ 34,300 & \text { Churning: } \$ 39,200 & \text { Freezing: } \$ 24,500 \\\hline\end{array}$

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

Question

Bridgestreet, Inc. has three operating departments: Cutting, Assembling and Finishing. Cutting has 5,000 employees and occupies 15,000 square feet. Assembling has 4,000 employees and occupies 12,000 square feet. Finishing has 1,000 employees and occupies 23,000 square feet. Indirect factory costs for the current period were Administrative, $170,000 and Maintenance, $212,000. 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.

-Based on the above data, determine the administrative cost allocated to each operating department of Bridgestreet, Inc.
$\begin{array}{|l|l|l|l|}\hline \text { (A) } & \text { Cutting: } \$ 70,666 & \text { Assembling: } \$ 70,666 & \text { Finishing: } \$ 70,666 \\\hline \text { (B) } & \text { Cutting: } \$ 15,000 & \text { Assembling: } \$ 12,000 & \text { Finishing: } \$ 23,000 \\\hline \text { (C) } & \text { Cutting: } \$ 63,600 & \text { Assembling: } \$ 50,880 & \text { Finishing: } \$ 97,520 \\\hline \text { (D) } & \text { Cutting: } \$ 127,333 & \text { Assembling: } \$ 127,333 & \text { Finishing: } \$ 127,333 \\\hline \text { (E) } & \text { Cutting: } \$ 115,000 & \text { Assembling: } \$ 91,680 & \text { Finishing: } \$ 175,720 \\\hline\end{array}$

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

Question

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

A) $0
B) $180
C) $225
D) $300
E) $425

Question

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?

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

Question

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.

-Gross profit for the White and Grey Divisions is:
$\quad\text { White } \quad \text { Grev }$
(A) $\$ 72,000 \quad \$ 193,000$
(B) $\$ 172,000 \quad \$ 352,000$
(C) $\$ 100,000 \quad \$ 241,000$
(D) $\$ 52,000 \quad \$ 163,000$
(E) $\$ 72,000 \quad \$ 163,000$

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

Question

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

A) $2,500
B) $3,000
C) $4,500
D) $5,625
E) $1,500

Question

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 administrative cost allocated to each operating department of Ice House Industries, Inc.
(A) $\text { Cooking: } \$ 168,000 \quad \text { Churning: \$280,000} \quad \text { Freezing: } \$ 112,000$
(B) $\text { Cooking: } \$ 186,666 \quad \text { Churning: \$186,666 } \quad \text { Freezing: } \$ 186,666$
(C) $\text { Cooking: } \$ 112,000 \quad \text { Churning: \$280,000 } \quad \text { Freezing: } \$ 168,000$
(D) $\text { Cooking: } \$ 280,000 \quad \text { Churning: \$112,000 } \quad \text { Freezing: } \$ 168,000$
(E) $\text { Cooking: } \$ 219,333 \quad \text { Churning: \$219,333 } \quad \text { Freezing: } \$ 219,333$

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

Question

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

Question

Allocating joint costs to products can be based on their relative:

A) Market values.
B) Direct costs.
C) Gross margins.
D) Total costs.
E) Variable costs.

Question

Which of the following is an example of a financial performance measure which would be found in a balanced scorecard?

A) Percentage of on-time delivery
B) Residual Income
C) Customer satisfaction
D) Cycle time
E) Employee turnover

Question

Which of the following is an example of a performance measure of internal business processes which would be found in a balanced scorecard?

A) Product defect rates
B) Number of new customers
C) Employee satisfaction
D) Return on Investment
E) Sales growth

Question

Bridgestreet, Inc. has three operating departments: Cutting, Assembling and Finishing. Cutting has 5,000 employees and occupies 15,000 square feet. Assembling has 4,000 employees and occupies 12,000 square feet. Finishing has 1,000 employees and occupies 23,000 square feet. Indirect factory costs for the current period were Administrative, $170,000 and Maintenance, $212,000. 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.

-Based on the above data, determine the maintenance cost allocated to each operating department of Bridgestreet, Inc.
$\begin{array}{|l|l|l|l|}\hline \text { (A) } & \text { Cutting: } \$ 70,666 & \text { Assembling: } \$ 70,666 & \text { Finishing: } \$ 70,666 \\\hline \text { (B) } & \text { Cutting: } \$ 15,000 & \text { Assembling: } \$ 12,000 & \text { Finishing: } \$ 23,000 \\\hline \text { (C) } & \text { Cutting: } \$ 63,600 & \text { Assembling: } \$ 50,880 & \text { Finishing: } \$ 97,520 \\\hline \text { (D) } & \text { Cutting: } \$ 127,333 & \text { Assembling: } \$ 127,333 & \text { Finishing: } \$ 127,333 \\\hline \text { E) } & \text { Cutting: } \$ 115,000 & \text { Assembling: } \$ 91,680 & \text { Finishing: } \$ 175,720 \\\hline\end{array}$ b

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

Question

Which of the following is an example of a performance measure of the customer perspective which would be found in a balanced scorecard?

A) Product defect rates
B) Number of new customers
C) Employee satisfaction
D) Return on Investment
E) Sales growth

Question

Bevo Beef Company uses the relative market value method of allocating joint costs in their production of beef products. Relevant information for the current period follows:
$\begin{array}{lrr}\text { Product } & \begin{array}{c}\text { Production in } \\\text { Pounds }\end{array} & \begin{array}{c}\text { Market } \\\text { Price/lb. }\end{array}\\\hline\text { Sirloin } & 3,000 & \$ 5.00 \\\text { Hamburger } & 10,000 & 2.00 \\\text { Rib eye } & 4,000 & 4.75 \\\text { Roast } & 6,000 & 3.50\end{array}$
The total joint cost for the current period was $43,000. How much of this cost should Bevo Beef allocate to sirloin?

A) $0
B) $5,909
C) $8,600
D) $10,750
E) $43,000

Question

A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows:
$\begin{array}{ll}\text { Grade } & \text { Production }& \text { Market Price }\\\hline\text { Structural } & 25,000 \text { board feet } &\$ 1,350 / 1,000 \mathrm{bd} \text {.ft. }\\\text { No. 1 Common } & 75,000 \text { board feet }&\$ 750 / 1,000 \mathrm{bd} \text {.ft. }\\\text { No. } 2 \text { Common }&100,000 \text { board feet}&\$ 300 / 1,000 \mathrm{bd} \text {.ft. }\end{array}$
How much of the $70,000 joint cost should be allocated to No. 2 Common?

A) $0
B) $17,500
C) $23,333
D) $35,000
E) $70,000

Question

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

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.

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Deck 22: Decentralization and Performance Evaluation

Evaluation of the performance of a department involves only financial measures.

False

Advertising expense can be reasonably allocated to departments on the basis of sales.

True

Responsibility performance reports usually compare actual costs to the budgeted costs amounts.

True

Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.

Unlock Deck