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Exam 9: Performance Measurement and Responsibility Accounting

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Question 21

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In regard to joint cost allocation, the "split-off point" is:

A) A physical basis method to allocate costs based on ratio of some physical characteristic.
B) The difference between the actual and market value of joint costs.
C) The point at which some products are sold and some remain in inventory.
D) The point at which separate products can be identified.
E) Not acceptable when using the value basis for allocating joint costs.

F) A) and D)
G) None of the above

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Question 22

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CakeCo, Inc. has three operating departments. Information about these departments is listed below. Maintenance is service department at CakeCo that incurred $12,000 of costs during the period. If allocated maintenance cost is based on floor space occupied by each of the operating departments, compute the amount of maintenance cost allocated to the Baking Department. $\begin{array} { l r r r } & \text { Mixing } & \text { Baking } & \text { Packaging } \\\text { Direct costs } & 21,000 & 15,000 & 9,000 \\\text { Sq. ft. of space } & 1,000 & 1,500 & 500\end{array}$

A) $400.
B) $1,200.
C) $4,000.
D) $7,500.
E) $6,000.

F) None of the above
G) A) and C)

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Question 23

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Holo Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Assume a target income of 15% of average invested assets. Compute residual income for the division:

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

Marsha Hansen, the manager of the Flint Plant of the Michigan 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. $\begin{array} { | l | r | r | r | r | r | r | } \hline & \begin{array} { c } \text { Budget } \\\text { A }\end{array} & \begin{array} { c } \text { Budget } \\\text { B }\end{array} &{ \text { Total } } &{ \begin{array} { c } \text { Actual } \\\text { A }\end{array} } & \begin{array} { c } \text { Actual } \\\text { B }\end{array} & \text { Total } \\\hline \text { Employee wages } & \$ 3,500 & \$ 4,000 & \$ 7,500 & \$ 3,200 & \$ 4,700 & \$ 7,900 \\\hline \text { Department } & & & & & & \\\hline \text { Manager's salary } & 800 & 800 & 1,600 & 800 & 800 & 1,600 \\\hline \text { Supplies } & 750 & 600 & 1,350 & 700 & 590 & 1,290 \\\hline \text { Building rent } & 1,500 & 1,500 & 3,000 & 1,400 & 1,400 & 2,800 \\\hline \text { Utilities } & 300 & 300 & 600 & 375 & 375 & 750 \\\hline \text { Maintenance } & 3,300 & 3,300 & 6,600 & 3,000 & 3,000 & 6,000 \\\hline\text { Totals }&\underline{\$10,150}&\underline{\$10,500}&\underline{\$20,650}&\underline{\$9,475}&\underline{\$10,865}&\underline{\$20,340}\\\hline \end{array}$ 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. Required: 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 Flint plant.

Franklin Co. has three departments: purchasing, human resources, and assembly. In a recent month the three departments incurred two shared indirect expenses. The amounts of the indirect expenses and the bases used to allocate them follow. Use this information to allocate each of the two indirect expenses across the three departments using the tables provided below. $\begin{array} { | l | c | c | } \hline \text { Indirect Expense } & \text { Cost } & \text { Allocation Base } \\\hline \text { Supervision } & \$ 85,000 & \text { Number of employees } \\\hline \text { Utilities and Insurance } & \underline { 38,000 } & \text { Square feet occupied } \\\hline \text { Total } & \underline { 123,000 } & \\\hline\end{array}$ Departmental data for the company's recent reporting period follow. $\begin{array}{|l|c|c|} \hline \text { Department } & \text { Employees } & \text { Square Feet } \\\hline \text { Purchasing } & 10 & 15,000 \\\hline \text { Human Resources } & 6 & 10,000 \\\hline \text { Assembly } & \underline{20} &\underline{ 25,000 }\\\hline \text { Total } & \underline{36} & \underline{50,000 }\\\hline \text { Supervision } & & \\\hline \text { Purchasing } & & \\\hline \text { Human Resources } & & \\\hline \text { Assembly } & & \\\hline \text { Total } & &\\\hline \end{array}$ $\begin{array} { | l | l | l | l | } \hline \text { Utilities and Insurance } &\quad\quad\quad &\quad\quad\quad &\quad\quad\quad \\\hline \text { Purchasing } & & & \\\hline \text { Human Resources } & & & \\\hline \text { Assembly } & & & \\\hline \text { Total } & & & \\\hline\end{array}$

An accounting system that is set up to control costs and evaluate managers' performance by assigning costs to the managers responsible for controlling them is called a(n) :

An example of a controllable cost is equipment depreciation expense.

A company has two departments, Y and Z that incur delivery expenses. An analysis of the total delivery expense of $9,000 indicates that Dept. Y had a direct expense of $1,000 for deliveries and Dept. Z had no direct expense. The indirect expenses are $8,000. The analysis also indicates that 40% of regular delivery requests originate in Dept. Y and 60% originate in Dept. Z. Departmental delivery expenses for Dept. Y and Dept. Z, respectively, are:

Super Grocery store allocates its service department expenses to its various operating (sales) departments. The following data is available for its service departments: The following information is available for its three operating (sales) departments: $\begin{array}{lrrr} \text {Department }& \text {Square }& \text {Dollar Sales}\\&\text {Feet}&\\\text { Produce } & 1,000 & \$ 80,000 \\\text { Bakery } & 800 & \$ 30,000 \\\text { Meats } & \underline{1,200} & \underline{\$ 42,000} \\\text { Totals } & \underline{ \$ 3,000} & \underline{\$ 152,000}\end{array}$ What is the total administrative expense allocated to the Meats department?

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.

Arkansas Toys, a retail store, has three sales departments supported by two service departments. Cost and operational data for each department follow: Purch. $\begin{array} { | c | c | c | c | c | } \hline \begin{array} { c } \text { Sales } \\\text { Department }\end{array} & \text { Sales } & \begin{array} { c } \text { Cost of } \\\text { Goods Sold }\end{array} & \begin{array} { c } \text { Square } \\\text { Footage }\end{array} & \begin{array} { c } \text { Orders } \\\text { Issued }\end{array} \\\hline 1 & \$ 92,160 & \$ 36,864 & 1,728 & 1,260 \\\hline 2 & 69,120 & 32,832 & 3,024 & 1,680 \\\hline 3 & 80,640 & 32,256 & 1,296 & 2,310 \\\hline\end{array}$ $\begin{array} { | c | l | r | } \hline \begin{array} { c } \text { Service } \\\text { Departments }\end{array} & { \text { Allocation Basis } } & { \text { Cost } } \\\hline \text { Advertising ......... }& \text { Sales } & \$ 10,000 \\\hline \text { Purchasing........ }& \text { No. of purchase orders issued } & 12,000 \\\hline\end{array}$ Determine the service department expenses to be allocated to Sales Department 1 for (round answers to whole dollars): Advertising ________ Purchasing ________

Pleasant Hills Properties is developing a golf course subdivision that includes 250 home lots; 100 lots are golf course lots and will sell for $95,000 each; 150 are street frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement. Compute the amount of joint cost to be allocated to the golf course lots using value basis. (Round your intermediate percentages to 2 decimal places.)

Data pertaining to a company's joint production for the current period follows: $\begin{array}{llcc} & \text { L } & \text { M } \\ \text { Quantities produced } &200 \text {Ibs}&150 \text {Ibs}\\ \text { Market value at split-off point } &\$8/ \text {Ib}&\$16/ \text {Ib}\\\end{array}$ Compute the cost to be allocated to Product L for this period's $660 of joint costs if the value basis is used. (Do not round your intermediate calculations.)

In a decentralized organization, decisions are made by managers throughout the company rather than by a few top executives.

A ________ incurs costs without directly generating revenues.

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

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, then the lowest acceptable transfer price as far as the selling division is concerned is:

Part 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require. What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?

Regal Furniture Company allocates its indirect salaries of $22,500 on the basis of sales. Determine the indirect salaries allocated to Departments 1 and 2 using the following information. $\begin{array} { | l | c | c | c | } \hline & \text { Dept.1 } & \text { Dept.2 } & \text { Combined } \\\hline \text { Revenues from sales........ } & \$ 182,000 & \$ 78,000 & \$ 260,000 \\\hline \text { Direct Salaries............ } & 42,250 & 22,750 & 65,000 \\\hline\end{array}$ Salaries allocated to Dept. 1 ________ Salaries allocated to Dept. 2 ________