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Exam 24: Performance Measurement and Responsibility Accounting

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Question 91

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The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage. Compute the amount of Maintenance department expense to be allocated to Assembly. $\begin{array}{lcccc}&\text { Purchasing }& \text { Maintenance }&\text { Fabrication }& \text { Assembly }\\ \text { Operating costs } & \$ 32,000 & \$ 18,000 & \$ 96,000 & \$ 62,000 \\\text { No. of purchase orders } && & 16 & 4 \\\text { Sq. ft. of space } & & &3,300 & 2,700\end{array}$

A) $6,400.
B) $9,000.
C) $8,100.
D) $9,900.
E) $25,600.

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

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Question 92

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Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $470,000; sales of $930,000; and income of $105,000. The investment center profit margin is:

A) 22.3%.
B) 447.6%.
C) 50.5%.
D) 197.9%.
E) 11.3%.

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

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Question 93

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Which of the following is not a step in creating operating department income statements?

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.

Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period: -The total cost of operating the Maintenance Department for the current period is:

Sturdivant Fasteners, Co. uses a traditional allocation of overhead based on direct labor hours system. The manager has accumulated the following information on engineering changes, which are indirect cost of their products, for two of the company's major products: $\begin{array} { l | l | l } & \begin{array} { l } \text { Autom otive } \\\text { Fasteners }\end{array} & \begin{array} { l } \text { Computer } \\\text { Fasteners }\end{array} \\\hline \text { Total units produced } & 5,000 & 2,500 \\\hline \text { Cost per engineering change } & \$ 400 & \$ 400 \\\hline \text { Number of engineering changes } & 5 & 25 \\\hline \text { Direct labor hours per unit } & 4 & 4\end{array}$ Compute the cost per unit using: The traditional two-stage allocation of the costs of engineering changes based on direct labor hours.

The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.

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

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 $ 80,000 Maintenance $ 100,000 - 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 Assembly Department for the current period is:

Boiano Corp. operates a retail store and has two service departments and two operating departments, Hardware and Automotive. During the current year, the departments had the following direct expenses and occupied the following amount of floor space. $\begin{array} { | l | l | l | } \hline \text { Department } & \text { Direct Expenses } & \text { Square Feet } \\\hline \text { Advertising } & \$ 50,000 & 750 \\\hline \text { Admini strative } & 100,000 & 1,500 \\\hline \text { Hardware } & 150,000 & 3,000 \\\hline \text { Automotive } & 200,000 & 9,750 \\\hline\end{array}$ The advertising department developed and aired 150 spots. Of these spots, 60 spots were for Hardware and 90 spots were for Automotive. The store sold $1,500,000 of merchandise during the year; $675,000 in Hardware and $825,000 in Automotive. Indirect expenses include rent, utilities, and insurance expense. Total indirect expenses of $220,000 are allocated to all departments. Prepare a departmental expense allocation spreadsheet for Boiano. The spreadsheet should assign (1) direct expenses to each of the four departments, (2) allocate the indirect expenses to each department on the basis of floor space occupied, (3) the advertising department's expenses to the two operating departments on the basis of ad spots placed promoting each department's products, (4) the administrative department's expenses based on the amount of sales. Complete the departmental expense allocation spreadsheet below. Provide supporting computations for the expense allocations below the spreadsheet.

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

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

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

A selling department is usually evaluated as a profit center.

Allocating joint costs to products using a value basis method is based on their relative:

Departmental income statements are prepared for service departments but not operating departments.

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

A cost center is a unit of a business that incurs costs without directly generating revenues. All of the following are considered cost centers except:

A ________ incurs costs without directly generating revenues.

Direct expenses are costs readily traced to a department because they are incurred for that department's sole benefit.