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Exam 9: Performance Measurement and Responsibility Accounting

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Question 21

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

A) Sales values.
B) Direct costs.
C) Gross margins.
D) Total costs.
E) Variable costs.

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

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Question 22

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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:

A) $4,400.
B) $3,000.
C) $4,000.
D) $2,200.
E) $2,000.

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

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Question 23

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Holliday, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows: Holliday allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales. Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200. Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.)

Data pertaining to a company's joint production for the current period follows: Compute the cost to be allocated to Product M for this period's $660 of joint costs if the value basis is used.

Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:

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

A college uses advisors who work with all students in all divisions of the college. The most useful allocation basis for the salaries of these employees would likely be:

Using the information below, compute the cash conversion cycle: $\begin{array}{ll}\text { Days' sales in accounts receivable } & \text { 35days } \\\text { Days' sales in inventory } & \text { 52days } \\\text { Days' payable outstanding } & \text { 45days }\end{array}$

Karl and Grady are managers of two product lines for Brewster Company. One of them is a candidate for promotion based on performance. Using the data below, determine who had the better performance using performance measures such as net income, profit margin, and return on investment. Show your calculations and support your answer.

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 of maintenance cost to the Carpentry 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?

An accounting system that is set up to control costs and evaluate managers' performance by assigning costs to the managers responsible for controlling them is called a(n) :

An expense that is readily traced to a department because it is incurred for that department's sole benefit is a(n) :

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 gross profit for the Black and Navy Divisions, respectively.

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: $\begin{array}{ll}\text { Administration } & \$ 80,000 \\\text { Maintenance } & \$ 100,000\end{array}$ 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:

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, then the lowest acceptable transfer price as far as the selling division is concerned is:

Calculating return on investment for an investment center is defined by the following formula:

Costs that the manager does not have the power to determine or at least significantly affect are:

The following is a partially completed departmental expense allocation spreadsheet for Brickland. It reports the total amounts of direct and indirect expenses for its 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 Fabrication.

Division X makes a part with the following characteristics: Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each. Suppose Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division X refuses to accept the $17 price internally and Division Y continues to buy from the outside supplier, the company as a whole will be:

Profit margin for an investment center measures: