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Exam 9: Performance Measurement and Responsibility Accounting

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Question 31

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Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: The amount of depreciation that should be allocated to Drilling for the current period is:

A) $40,000.
B) $20,000.
C) $25,000.
D) $ 7,500.
E) $12,500.

F) A) and B)
G) A) and C)

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Question 32

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A firm produces and sells two products, Plus and Max. The following information is available relating to setup costs (a part of factory overhead) : $\begin{array}{llcc} \text { Cost per setup } &\$1,080 \\ \text {Total setup cost } &\$64,800\end{array}$ With traditional allocation of overhead costs, using direct labor hours as the allocation base, the setup cost portion of overhead that is allocated to each unit of product for Plus and Max, respectively is:

A) $.80; $.80.
B) $3.20; $3.20.
C) $4.00; $4.00.
D) $160.00; $12,800.00.
E) $200.00; $16,000.00.

F) A) and D)
G) A) and E)

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Question 33

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

A lumber mill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. 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.

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

The process of preparing departmental income statements begins with allocating service department expenses.

What is a profit center and how is its performance evaluated?

The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year: Assume that the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current profit?

Canfield Technical School allocates administrative costs to its respective departments based on the number of students enrolled, while maintenance and utilities are allocated per square feet of the classrooms. Based on the information below, what is the total amount allocated to the Welding Department (rounded to the nearest dollar) if administrative costs for the school were $50,000, maintenance fees were $12,000, and utilities were $6,000?

Riemer, Inc. has four departments. Information about these departments is listed below. Maintenance is a service department. If allocated maintenance cost is based on floor space occupied by each of the other departments, compute the amount of maintenance cost allocated to the Cutting Department. $\begin{array}{lcrrr} & \text { Maintenance } & \text { Cutting } & \text { Assembly } & \text { Packaging } \\\text { Direct costs } & \$ 18,000 & \$ 30,000 & \$ 70,000 & \$ 45,000 \\\text { Sq. ft. of space } & 500 & 1,500 & 2,000 & 2,500 \\\text { No. of employees } & 2 & 3 & 16 & 4\end{array}$

A system of performance measures, including nonfinancial measures, used to assess company and division manager performance is:

Responsibility accounting performance reports:

The Linens Department of the Krafton Department Store had sales of $282,000, cost of goods sold of $173,500, indirect expenses of $19,875, and direct expenses of $41,250 for the current period. What is the Linens Department's contribution to overhead as a percent of sales?

Ready Company has two operating (production) departments: Assembly and Painting. Assembly has 150 employees and occupies 44,000 square feet; Painting has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the current period are as follows: Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The total amount of indirect factory expenses that should be allocated to the Painting Department for the current period is:

The first three steps in preparing a departmental income statement are: (1) accumulate ________ of the department, (2) allocate ________ to the department, and (3) allocate ________ to the operating departments.

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 M for this period's $660 of joint costs if the value basis is used.

Pepper Department 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: What is the total expense allocated to Department B?

Division M makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division O of the same company would like to use the part manufactured by Division M in one of its products. Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M. Division O requires 5,000 units of the part each period. Division M can sell every unit it produces on the outside market. What should be the lowest acceptable transfer price from the perspective of Division O?

Measures used to evaluate the manager of an investment center include investment turnover and profit margin.

Departmental income statements are prepared for operating departments (profit centers) but not service departments (cost centers).