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Exam 9: Performance Measurement and Responsibility Accounting

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Question 51

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Marian Corporation has two separate divisions that operate as profit centers. The following information is available for the most recent year: The Black Division occupies 20,000 square feet in the plant. The Navy 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 Black and Navy Divisions, respectively.

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.

F) A) and D)
G) All of the above

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Question 52

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The difference between a profit center and an investment center is

A) An investment center incurs costs, but does not directly generate revenues.
B) An investment center incurs no costs but does generate revenues.
C) An investment center is responsible for investments made in operating assets.
D) An investment center provides services to profit centers.
E) There is no difference; investment center and profit center are synonymous.

F) C) and D)
G) B) and D)

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Question 53

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A granary allocates the cost of unprocessed wheat to the production of feed, flour, and starch. For the current period, unprocessed wheat was purchased for $120,000, and the following quantities of product and sales revenues were produced. $\begin{array} { l c c } \text { Product } & \text { Pounds } & \text { Price per Pound } \\\text { Feed } & 100,000 & \$ 0.70 \\\text { Flour } & 50,000 & 2.20 \\\text { Starch } & 20,000 & 1.00\end{array}$ How much of the $120,000 cost should be allocated to flour if the value basis is used?

Using the information below, compute the cycle efficiency: $\begin{array}{lrl}\text { Process time } & 6.0 & \text { hours } \\\text { Inspections time } & .5 & \text { hours } \\\text { Move time } & .6 & \text { hours } \\\text { Wait time } & .9 & \text { hours } \\\text { Warehouse storage time } & 72.0& \text { hours }\end{array}$

Jarrett Department Store operates three departments (A, B and C). If total costs of $4,500 are to be allocated on the basis of square feet of space (Dept. A = 1,500 Sq. Ft.; Dept. B = 900 Sq. Ft.; Dept. C = 600 Sq. Ft.) then Dept. A's share (in percent) of the $4,500 cost would be ________%; Dept. B would be ________%, and Dept. C would be ________%. The amount of cost allocated to Dept. C would be $________.

A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were: Department A……………… $308,000 Department B……………… 644,000 Department C……………… 448,000 Total sales…………………. $1,400,000 Calculate the amount of advertising expense that should be allocated to each department?

An accounting system that accumulates and reports costs incurred by each service department for management to evaluate the performance of a department is a:

Wren Pork Company uses the value basis of allocating joint costs in its production of pork products. Relevant information for the current period follows: $\begin{array} { l r r } \text { Product } & \text{ Pounds } & \text { Price/lb } \\\text { Loin chops } & { 3 , 0 0 0 } & \$ 5.00 \\\text { Ground } & 10,000 & 2.00 \\\text { Ribs } & 4,000 & 4.75 \\\text { Bacon } & 6,000 & 3.50\end{array}$ The total joint cost for the current period was $43,000. How much of this cost should Wren Pork allocate to Loin chops?

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 of the space occupied by each. Department One occupies 2,000 square feet of floor space, Department Two occupies 3,000 square feet of floor space, and Department Three occupies 5,000 square feet of floor space. If the rent is allocated based on the total square footage of the space, Department One should be charged rent expense for the period of:

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 amount of maintenance expenses that should be allocated to the Painting Department for the current period is:

Allocating costs to service departments involves accumulating revenues and direct expenses, allocating indirect expenses, and preparing the department income statement.

Flamingos, Inc. has four departments. The Administrative Department costs are allocated to the other three departments based on the number of employees in each and the Maintenance Department costs are allocated to the Assembly and Packaging Departments based on their occupied space. Data for these departments follows: $\begin{array} { | l | r | r | r | r | } \hline &\underline{ \text { Admin.} } & \underline{\text { Maintenance } }& \underline{\text { Assembly } }&\underline{ \text { Packaging } }\\\hline \text { Operating costs } & & & \$ 70,000 & \$ 45,000 \\\text { No. of employees } & & \$ 15,000 & 6 & 4 \\\text { Sq. ft. of space } & \$ 30,000 & 2 & 2,000 & 3,000 \\\hline\end{array}$ The total amount of the Administrative Department's cost that would eventually be allocated to the Packaging Department is:

Investment center managers are evaluated on their use of investment center assets to generate income.

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

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

What is an investment center and how is its performance evaluated?

Chancellor Company is divided into four departments. Departments A and B are service departments and Departments 1 and 2 are operating (production) departments. The services of the two service departments are used by the other departments as follows: $\begin{array} { | l | c | c | c | c | } \hline & \text { Dept. A } & \text { Dept. B } & \text { Dept. 1 } & \text { Dept. 2 } \\\hline \text { Services of: } & & & & \\\hline \text { Department } A \ldots \ldots \ldots . & & 50 \% & 20 \% & 30 \% \\\hline \text { Department B......... } & & & 40 \% & 60 \% \\\hline \text { Direct costs incurred by each department } & \$ 60,000 & \$ 50,000 & \$ 70,000 & \$ 80,000 \\\hline\end{array}$ Complete the following table:

Investment center managers are usually evaluated using performance measures

Cycle time is calculated by process time plus inspection time plus move time plus ________.

In the process of preparing department income statements, a company uses there are three steps before the statements can be completed. Describe those steps.