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Exam 24: Performance Measurement and Responsibility Accounting

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Question 81

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A responsibility accounting system:

A) Is designed to measure the performance of managers in terms of controllable costs.
B) Assigns responsibility for costs to the appropriate managerial level that controls those costs.
C) Should not hold a manager responsible for costs over which the manager has no influence.
D) Can be applied at any level of an organization.
E) All of the choices are correct.

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

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Question 82

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Leontif Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers.The company's Equipment Division has asked the Parts Division to provide it with 2,000 special parts each year.The special parts would require $17.00 per unit in variable production costs.The Equipment Division has a bid from an outside supplier for the special parts at $28.00 per unit.In order to have time and space to produce the special part,the Parts Division would have to cut back production of another part-the J789 that it presently is producing.The J789 sells for $34.00 per unit,and requires $22.00 per unit in variable production costs.Packaging and shipping costs of the J789 are $4.00 per unit.Packaging and shipping costs for the new special part would be only $0.50 per unit.The Parts Division is now producing and selling 10,000 units of the J789 each year.Production and sales of the J789 would drop by 10% if the new special part is produced for the Equipment Division. Required: a.What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 2,000 special parts per year from the Parts Division to the Equipment Division? b.Is it in the best interests of Leontif Corporation for this transfer to take place? Explain.

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a.From the perspective of the Parts Divi...

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Question 83

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Farber,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: $\begin{array} { l r r r r } \text { Operating costs } & \frac { \text { Adrrin. } } { \$ 30,000 } & \frac { \text { Maintenance } } { \$ 15,000 } & \frac { \text { Assernbly } } { 570,000 } & \frac { \text { Packaging } } { \$ 45,000 } \\\text { No. of ermployees... } && 2 & 6 & 4 \\\text { Sq. ft. of space..... } &&& 2,000 & 3,000\end{array}$ The total amount of the Administrative Department's cost that would eventually be allocated to the Packaging Department is:

An example of a service department is the human resources department.

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.

A useful measure used to evaluate the performance of an investment center is investment center residual income.

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 department can never be considered to be a profit center.

The China Department of the Coulsen Department Store had sales of $282,000,cost of goods sold of $198,750,indirect expenses of $19,875,and direct expenses of $41,250 for the current period.What is the China Department's contribution to overhead as a percent of sales?

Explain the difference between direct and indirect expenses in accounting for departments.

Vaughn Co.operates three separate departments (A,B,C).The data below is provided for the current year: Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

A department that is responsible for maximizing revenues is known as a profit center.

Which of the following statements is correct concerning the elements of cycle time?

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

Investment center is another name for profit center.

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

Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10,direct labor is $4,variable manufacturing overhead is $9,and fixed manufacturing overhead is $3.Eastern Division sells Part WY4 to other companies for $30.The Western Division of Tyble Corporation can use Part WY4 in one of its products.The Eastern Division has enough idle capacity to produce all of the units of Part WY4 that the Western Division would require.What is the lowest transfer price at which the Eastern Division should be willing to sell Part WY4 to the Central Division?

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.

The __________ is a report of the amount of sales less direct expenses for a department.

How do companies decide what allocation bases to use to allocate indirect costs to departments?