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Exam 9: Performance Measurement and Responsibility Accounting

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Question 51

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A report that accumulates the actual expenses that a manager is responsible for and their budgeted amounts is a:

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

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

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Question 52

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Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of average invested assets. Compute residual income for the division:

A) $203,000.
B) $193,000.
C) $150,500.
D) $60,300.
E) $197,500.

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

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Question 53

Multiple Choice

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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 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. How much of the $120,000 cost should be allocated to feed if the value basis is used?

Departmental salary expenses are direct expenses of that department.

A retail store has three departments, S, T, and U, and does general advertising that benefits all departments. Advertising expense totaled $50,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department T based on departmental sales. $\begin{array}{lr}\text { Department S } & \$ 110,000 \\\text { Department T } & 213,750 \\\text { Department U } & 151,250 \\\text { Total } & \$ 475,000 \\\end{array}$

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: $\begin{array}{lll}\text { Office Expenses } & \text { Total } & \text { Allocation Basis } \\\text { Salaries } & \$ 30,00 \mathrm{C} & \text { Number of employees } \\\text { Depreciation } & 20,000 & \text { Cost of goods sold } \\\text { Advertising } & 40,000 & \text { Net sales }\end{array}$ $\begin{array}{lrrr}\text { Item } &{\text { Drilling }} & \text { Grinding } & \text { Total } \\\text { Number of employees } & 1,000 & 1,500& 2,500 \\\text { Net sales } & \$ 325,000 & \$ 475,000 & \$ 800,000 \\\text { Cost of goods sold } & \$ 75,000& \$ 125,000 & \$ 200,000\end{array}$ The amount of depreciation that should be allocated to Grinding for the current period is:

Match the appropriate definition a through h with the following terms:

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

In the two-stage cost allocation, ________ costs are allocated to operating departments, and the operating department costs are allocated to ________.

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: The total amount of the Administrative Department's cost that would eventually be allocated to the Packaging Department is:

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

Data pertaining to a company's joint production for the current period follows: 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.)

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: $\begin{array}{lll}\text { Office Expenses } & \text { Total } & \text { Allocation Basis } \\\text { Salaries } & \$ 30,00 \mathrm{C} & \text { Number of employees } \\\text { Depreciation } & 20,000 & \text { Cost of goods sold } \\\text { Advertising } & 40,000 & \text { Net sales }\end{array}$ $\begin{array}{lrrr}\text { Item } &{\text { Drilling }} & \text { Grinding } & \text { Total } \\\text { Number of employees } & 1,000 & 1,500& 2,500 \\\text { Net sales } & \$ 325,000 & \$ 475,000 & \$ 800,000 \\\text { Cost of goods sold } & \$ 75,000& \$ 125,000 & \$ 200,000\end{array}$ The amount of salaries that should be allocated to Grinding for the current period is:

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

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

A(n) ________ is a department that generates revenues and incurs costs and whose manager is also responsible for using the center's assets to generate income for the center.

Indirect expenses are incurred for the joint benefit of more than one department; they cannot be readily traced to only one 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:

A ________ generates revenues and incurs costs.