Q&A Hero

Q: Laurel and Hardy are managers of two product lines for Keaton Company. One of them is a candidate for promotion based on performance. Using the data below, determine who had the better performance. Detail your calculations and support your answer. Laurel Hardy Revenue $412,000 $450,000 Costs 380,000 411,000 Average assets 400,000 600,000

Q: A company manufactures two products, X and Y, from a single raw material called ZZ. ZZ is purchased in 55-gallon drums, and the contents of one drum are sufficient to produce 30 gallons of X and 15 gallons of Y. X sells for $10 per gallon and Y sells for $30 per gallon. During the current period, the company used 400 drums of ZZ to manufacture X and Y. The cost of ZZ was $90 per drum. Required: a. If the cost of ZZ is allocated to the X and Y products on the basis of the number of gallons produced, how much of the total cost of the 400 drums should be charged to each product? b. If the cost of ZZ is allocated to the X and Y products in proportion to their market values, how much of the total cost of the 400 drums should be charged to each product? c. Which basis of allocating the cost is most likely to be used by the company? Check one and briefly explain. _______ The relative number of gallons of each product produced. _______ The relative market values of each product at the point of separation.

Q: A company produces two joint products (called 101 and 202) in a single operation that uses one raw material called Casko. Four hundred gallons of Casko were purchased at a cost of $800 and were used to produce 150 gallons of Product 101, selling for $5 per gallon, and 75 gallons of Product 202, selling for $15 per gallon. How much of the $800 cost should be allocated to each product, assuming that the company allocates cost based on sales revenue?

Q: 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 $356,250 Department B 641,250 Department C 427,500 How much advertising expense should be allocated to each department?

Q: A company rents a small building with 10,000 square feet of space for $100,000 per year. The rent is allocated to the company's three departments on the basis of the value of the space occupied by each. Department 1 occupies 1,500 square feet of ground-floor space, Department 2 occupies 3,500 square feet of ground-floor space, and Department 3 occupies 5,000 square feet of second-floor space. If rent for comparable floor space in the neighborhood averages $15.00 per sq. ft. for ground-floor space and $10 per sq. ft. for second-floor space, what annual rent expense should be charged to each department?

Q: Eclectic Furniture Company allocates its indirect salaries of $12,500 on the basis of sales. Determine the indirect salaries allocated to Departments 1 and 2 using the following information: Dept. 1 Dept. 2 Combined Revenues from sales $182,000 $78,000 $260,000 Direct salaries 42,250 22,750 65,000 Salaries allocated Dept. 1 _______________ Salaries allocated to Dept. 2 _______________

Q: Discuss some of the financial and nonfinancial performance measures that are important to United By Blue founder Brian Linton.

Q: List the steps required to prepare a departmental income statement.

Q: Define an investment center. How are investment centers evaluated?

Q: What is a transfer price and what methods are used to set its value?

Q: How is residual income calculated and how do managers use it?

Q: What is the balanced scorecard and how is it used?

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

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

Q: What is the main difference between a cost center and a profit center?

Q: What is a cost center?

Q: What is a profit center?

Q: Match the appropriate shared cost categories with the appropriate allocation bases (a) through (e): (a) Square footage of floor space. (b) Number of employees in department. (c) Sales in department. (d) Time spent/used in department. (e) Number of items processed. (f) Not an allocated cost. __________ (1) Office expense __________ (2) Utilities expense __________ (3) Payroll processing costs __________ (4) Cleaning costs __________ (5) Rent __________ (6) Advertising __________ (7) Depreciation on departmental equipment __________ (8) Data processing costs

Q: Match the appropriate balanced scorecard perspectives (a) through (d) with the following measurements of performance: (a) Financial (b) Customer (c) Internal process (d) Innovation/learning __________ (1) Customer satisfaction rating __________ (2) Product costs __________ (3) Labor hours per order __________ (4) Cash flow __________ (5) Employee turnover __________ (6) Net income __________ (7) Cycle time __________ (8) Number of patents

Q: Match the appropriate definition (a) through (h) with the following terms: (a) A department whose manager is judged on the ability to generate revenues in excess of the department's costs. (b) Costs that are incurred for the joint benefit of more than one department. (c) A factor that causes the cost of an activity to go up and down. (d) A center whose manager is responsible for using the center's assets to generate income for the center. (e) Provides information that management can use to evaluate the performance of a department's managers. (f) Compares actual and budgeted costs and expenses under the control of a manager. (g) A department whose manager is judged on the ability to control costs by keeping them within a satisfactory range. (h) Departmental sales in excess of its direct costs and expenses. __________ (1) Investment center __________ (2) Performance report __________ (3) Cost center __________ (4) Departmental contribution to overhead __________ (5) Cost driver __________ (6) Profit center __________ (7) Indirect expenses __________ (8) Responsibility accounting system

Q: Match the appropriate definition (a) through (h) with the following terms: (a) A department or unit that incurs costs without directly generating revenues. (b) A center in which a manager is responsible for using the center's assets to generate income for the center. (c) Costs that are incurred for the joint benefit of more than one department and cannot be readily traced to only one department. (d) Costs readily traced to a specific department because they are incurred for the sole benefit of that department. (e) Costs incurred to produce two or more products at the same time. (f) Costs that a manager can strongly influence or control. (g) A department that incurs costs and generates revenues. (h) Assigns managers the responsibility for costs and expenses under their control. __________ (1) Direct expenses __________ (2) Responsibility accounting system __________ (3) Profit center __________ (4) Controllable costs __________ (5) Indirect expenses __________ (6) Cost center __________ (7) Joint cost __________ (8) Investment center

Q: A companys electronics division had sales of $25 billion, net income of $4 billion, and average invested assets of $5 billion. What is this divisions return on investment? A. 16% B. 5 C. 80% D. 20% E. 1.25

Q: A companys Pacific division had sales of $15 billion, net income of $3 billion, and average invested assets of $4 billion. What is this divisions investment turnover? A. 1.33 B. 0.20 C. 5.00 D. 3.75 E. 0.27

Q: A companys international division had sales of $20 billion, net income of $1.5 billion, and average invested assets of $2 billion. What is this divisions profit margin? A. 75% B. 10% C. 7.5% D. 133% E. $18 billion

Q: Midwest Rocks receives and produces an order. What is the companys value-added time assuming the following times were measured during production of this order? Process time: .7 days Inspection time: .25 days Move time: 1.05 days Wait time: .5 days A. 1.8 days B. .7 days C. .95 days D. 2 days E. 2.5 days

Q: Midwest Rocks receives and produces an order. What is the companys cycle efficiency assuming the following times were measured during production of this order? Process time: .7 days Inspection time: .25 days Move time: 1.05 days Wait time: .5 days A. 10% B. 28% C. 42% D. 20% E. 50%

Q: Midwest Rocks receives and produces an order. What is the companys cycle time assuming the following times were measured during production of this order? Process time: .7 days Inspection time: .25 days Move time: 1.05 days Wait time: .5 days A. 1.8 days B. .7 days C. .95 days D. 2 days E. 2.5 days

Q: Wait time is the time: A. Spent producing the product. B. Spent inspecting raw materials received, goods in process while in production, and finished goods prior to shipment. C. Spent moving raw materials from storage to production and goods in process from one factory location to another factory location D. That an order or job sits with no production applied to it. E. That is considered value-added time.

Q: Process time is the time: A. Spent producing the product. B. Spent inspecting raw materials received, goods in process while in production, and finished goods prior to shipment. C. Spent moving raw materials from storage to production and goods in process from one factory location to another factory location. D. That an order or job sits with no production applied to it. E. That is considered non-value-added time.

Q: Based on the Quarry Company information, what is residual income for Smith and Barney? A. Smith: $4,000; Barney: $(3,000) B. Smith: $(3,000); Barney: $4,000 C. Smith: $28,000; Barney: $42,000 D. Smith: $8% ; Barney: 6.5% E. Smith: $0; Barney: $0

Q: Fred Smith and Joe Barney are managers of two product lines for Quarry Company. One of them is a candidate for promotion based on performance. Using the data above, which of the following is a true statement? A. Smith is outperforming Barney as measured by return on investment center assets. B. Barney is outperforming Smith as measured by return on investment center assets. C. The return in investment center assets is the same for both D. If target performance is a 7% return on assets, both investment centers are performing above the target level. E. If target performance is a 7% return on assets, the residual income for both centers is positive.

Q: Given the information above, which of Rock Bottom Golfs departments has the highest contribution margin as a percent of sales? A. Golf Clubs. B. Golf Bags. C. Golf Balls. D. Golf Apparel. E. None, this is not a calculation performed at the department level.

Q: Given the information above, list Rock Bottom Golfs departments in order of highest departmental contribution to overhead to lowest departmental contribution to overhead. A. Golf Balls, Golf Apparel, Golf Bags, Golf Clubs. B. Golf Apparel, Golf Balls, Golf Bags, Golf Clubs. C. Golf Clubs, Golf Bags, Golf Balls, Golf Apparel. D. Golf Clubs, Golf Bags, Golf Apparel, Golf Balls. E. Golf Balls, Golf Apparel, Golf Clubs, Golf Bags.

Q: Which department has the greatest departmental contribution to overhead and what is the amount contributed? A. Dept. 3; $ 400,000 B. Dept. 1; $1,000,000 C. Dept. 2; $ 100,000 D. Dept. 3; $ 250,000 E. Dept. 2; $ 150,000

Q: Department 1's contribution to overhead as a percent of sales is: A. 8% B. 40% C. 20% D. 30% E. 12%

Q: The Footwear Department of Lee's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of $27,500 for the current period. The Footwear Department's contribution to overhead as a percent of sales is: A. 7.8% B. 14.9% C. 29.5% D. 66.7% E. 85.4%

Q: Departmental contribution to overhead is calculated as revenues of the department less: A. Controllable costs. B. Product and period costs. C. Direct costs and expenses. D. Direct and indirect costs. E. Joint costs.

Q: The amount by which a department's revenues exceed its direct costs and expenses is the: A. Net sales. B. Gross profit. C. Departmental profit. D. Contribution margin. E. Departmental contribution to overhead.

Q: Assume that Bookman allocated $29,800 maintenance costs to Department C. Based on the above data, determine maintenance costs allocated to Department A. A. $29,800 B. $149,000 C. $52,150 D. $67,050 E. $425,714

Q: Assume that Bookman allocated $67,050 maintenance costs to Department B. Based on the above data, determine the companys total maintenance costs. A. $30,172 B. $149,000 C. $23,467 D. $191,571 E. $335,250

Q: Assume that Bookman allocated $11,250 administrative costs to Department A. Based on the above data, determine the companys total administrative costs. A. $32,143 B. $1,687 C. $22,500 D. $75,000 E. $5,625

Q: Based on the above data, determine the maintenance cost allocated to each operating department of Ice House Industries, Inc. A. Cooking: $219,333 Churning: $219,333 Freezing: $219,333 B. Cooking: $230,300 Churning: $263,200 Freezing: $164,500 C. Cooking: $ 33,250 Churning: $ 38,000 Freezing: $ 23,750 D. Cooking: $ 32,666 Churning: $ 32,666 Freezing: $ 32,666 E. Cooking: $ 34,300 Churning: $ 39,200 Freezing: $ 24,500

Q: Based on the above data, determine the administrative cost allocated to each operating department of Ice House Industries, Inc. A. Cooking: $168,000 Churning: $280,000 Freezing: $112,000 B. Cooking: $186,666 Churning: $186,666 Freezing: $186,666 C. Cooking: $112,000 Churning: $280,000 Freezing: $168,000 D. Cooking: $280,000 Churning: $112,000 Freezing: $168,000 E. Cooking: $219,333 Churning: $219,333 Freezing: $219,333

Q: Based on the above data, determine the maintenance cost allocated to each operating department of Bridgestreet, Inc. A. Cutting: $ 70,666 Assembling: $ 70,666 Finishing: $ 70,666 B. Cutting: $ 15,000 Assembling: $ 12,000 Finishing: $ 23,000 C. Cutting: $ 63,600 Assembling: $ 50,880 Finishing: $ 97,520 D. Cutting: $127,333 Assembling: $127,333 Finishing: $127,333 E. Cutting: $115,000 Assembling: $ 91,680 Finishing: $175,720

Q: Based on the preceding data, determine the administrative cost allocated to each operating department of Bridgestreet, Inc. A. Cutting: $ 56,666 Assembling: $ 56,666 Finishing: $ 56,666 B. Cutting: $ 5,000 Assembling: $ 4,000 Finishing: $ 1,000 C. Cutting: $127,333 Assembling: $127,333 Finishing: $127,333 D. Cutting: $ 85,000 Assembling: $ 68,000 Finishing: $ 17,000 E. Cutting: $191,000 Assembling: $152,800 Finishing: $ 38,200

Q: Grey Division's departmental income is: A. $163,000 B. $211,000 C. $241,000 D. $52,000 E. $173,000

Q: Gross profit for the White and Grey Divisions is: White Grey A. $ 72,000 $193,000 B. $172,000 $352,000 C. $100,000 $241,000 D. $ 52,000 $163,000 E. $ 72,000 $163,000

Q: In the preparation of departmental income statements, the preparer completes the following steps in the following order: A. Identify direct expenses; allocate indirect expenses; allocate service department expenses. B. Identify indirect expenses; allocate direct expenses; allocate service department expenses. C. Identify service department expenses; allocate direct expenses; allocate indirect expenses. D. Identify direct expenses, allocate service department expenses, allocate indirect expenses. E. Allocate all expenses.

Q: Which of the following is an example of a financial performance measure that would be found in a balanced scorecard? A. Percentage of sales from new customers. B. Money spent on employee training programs. C. Product costs. D. Return on investment. E. Money spent on research and development.

Q: Which of the following is an example of a financial performance measure that would be found in a balanced scorecard? A. Percentage of on-time delivery. B. Residual income. C. Customer satisfaction. D. Cycle time. E. Employee turnover.

Q: Which of the following is an example of a performance measure of the customer perspective that would be found in a balanced scorecard? A. Product defect rates. B. Number of new customers. C. Employee satisfaction. D. Return on investment. E. Sales growth.

Q: Which of the following is an example of a performance measure of internal business processes that would be found in a balanced scorecard: A. Product defect rates. B. Number of new customers. C. Employee satisfaction. D. Return on investment. E. Sales growth.

Q: If the $450 cost of the 300 gallons of Material M were to be allocated to the joint products in proportion to the number of gallons of each product produced, Product A's share would be: A. $0 B. $180 C. $225 D. $300 E. $450

Q: The portion of the $450 cost that should be allocated to Product A using the value basis of allocation is: A. $0 B. $180 C. $225 D. $300 E. $425

Q: Product Production in Pounds Market Price/Pound Sirloin 3,000 $5.00 Hamburger 10,000 2.00 Rib eye 4,000 4.75 Roast 6,000 3.50 The total joint cost for the current period was $43,000. How much of this cost should Bevo Beef allocate to sirloin? A. $0 B. $5,909 C. $8,600 D. $10,750 E. $43,000

Q: Bevo Beef Company uses the relative market value method of allocating joint costs in their production of beef products. Relevant information for the current period follows:

Q: Product Pounds Price per Pound Milk 100,000 $0.90 Cheese 50,000 2.20 Butter 20,000 1.00 Cream 10,000 3.00 How much of the $240,000 cost should be allocated to milk? A. $0 B. $86,400 C. $90,000 D. $133,333 E. $240,000

Q: A dairy allocates the cost of unprocessed milk to the production of milk, cream, butter and cheese. For the current period, unprocessed milk was purchased for $240,000, and the following quantities of product and sales revenues were produced.

Q: A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in three different grades and amounts as follows: Grade Production Market Price Structural 25,000 board feet $1,350/1,000 bd. ft. No. 1 Common 75,000 board feet $ 750/1,000 bd. ft. No. 2 Common 100,000 board feet $ 300/1,000 bd. ft. How much of the $70,000 joint cost should be allocated to No. 2 Common? A. $0 B. $17,500 C. $23,333 D. $35,000 E. $70,000

Q: A sawmill bought a shipment of logs for $40,000. When cut, the logs produced 1 million board feet of lumber in the following grades: Type 1 - 400,000 bd. ft. priced to sell at $0.12 per bd. ft. Type 2 - 400,000 bd. ft. priced to sell at $0.06 per bd. ft. Type 3 - 200,000 bd. ft. priced to sell at $0.04 per bd. ft. How much cost should be allocated to Type 1 and Type 2, respectively? Type 1 Type 2 A. $16,000 $16,000 B. $13,333 $ 4,444 C. $40,000 $24,000 D. $24,000 $12,000 E. $24,000 $ 8,000

Q: Data pertaining to a company's joint manufacturing process for the current period follows: Product Product A B Quantities produced 200 lbs. 100 lbs. Processing cost after products are separated $1,100 $400 Market value at point of separation $8/lb. $16/lb. What cost amount should be allocated to Product A for this period's $660 of joint costs on the basis of market value at the point of separation? A. $330.00 B. $440.00 C. $220.00 D. $194.12 E. $484.00

Q: General Chemical produced 10,000 gallons of Greon and 20,000 gallons of Baron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Greon has a market value of $6 per gallon and Baron $2 per gallon. What portion of the joint costs should be allocated to Greon if the basis is market value at point of separation? A. $2,500 B. $3,000 C. $4,500 D. $5,625 E. $1,500

Q: Allocating joint costs to products can be based on their relative: A. Market values B. Direct costs C. Gross margins D. Total costs E. Variable costs

Q: Allocations of joint product costs can be based on the relative market values of the products: A. And never on the relative physical quantities of the products. B. Plus an adjustment for future excess margins. C. And not on any other basis. D. At the time the products are separated. E. Only if the products contain both direct and indirect costs.

Q: A single cost incurred in producing or purchasing two or more essentially different products is a(n): A. Product cost B. Incremental cost C. Differential cost D. Joint cost E. Fixed cost

Q: Under which of the following conditions is a market-based transfer price likely to be used? A. There is no excess capacity. B. No market price exists. C. Excess capacity exists. D. Excess capacity exists and the market price covers fixed costs. E. There is only an internal market for the item in question.

Q: A responsibility accounting system: A. Is designed to measure the performance of managers in terms of uncontrollable costs. B. Assigns responsibility for costs to the top managerial level. C. Is designed to hold a manager responsible for costs over which the manager has no influence. D. Can be applied at any level of an organization. E. Is well suited to work in an environment without clear lines of responsibility and authority.

Q: A responsibility accounting report that compares actual costs and expenses for a department with the budgeted amounts is called a(n): A. Performance report B. Service report C. Income statement D. Balance sheet E. Cost report

Q: A responsibility accounting performance report documents: A. Only actual costs. B. Only budgeted costs. C. Both actual costs and budgeted costs. D. Only direct costs. E. Only indirect costs.

Q: Responsibility accounting performance reports: A. Become more detailed at higher levels of management. B. Become less detailed at higher levels of management. C. Are equally detailed at all levels of management. D. Are useful in any format. E. Are irrelevant.

Q: In a responsibility accounting system: A. Controllable costs are assigned to managers who are responsible for them. B. Each accounting report contains all items allocated to a responsibility center. C. Organized and clear lines of authority and responsibility are only incidental. D. All managers at a given level have equal authority and responsibility. E. Control over costs belongs only to the top level of management.

Q: Which of the following would not appear on a responsibility accounting performance report? A. Actual costs for a period. B. Variance from the budget. C. Budgeted costs for a period. D. Controllable costs. E. Uncontrollable costs.

Q: The most useful evaluation of a manager's cost performance is based on: A. Controllable costs. B. Contribution percentages. C. Departmental contributions to overhead. D. Fixed expenses. E. Direct costs.

Q: Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be: A. A payroll clerk. B. A cost center manager. C. A production line worker. D. A maintenance worker. E. A graphic designer.

Q: Costs that the manager does not have the power to determine or strongly influence are: A. Variable costs B. Uncontrollable costs C. Indirect costs D. Direct costs E. Joint costs

Q: An accounting system that provides information that management can use to evaluate the performance of a department's manager is called a: A. Cost accounting system. B. Managerial accounting system. C. Responsibility accounting system. D. Financial accounting system. E. Activity-based accounting system.

Q: A report that specifies the expected and actual costs under the control of a manager is a: A. Segmental accounting report. B. Managerial cost report. C. Controllable expense report. D. Departmental accounting report. E. Responsibility accounting report.

Q: Costs that the manager has the power to determine or at least strongly influence are called: A. Uncontrollable costs B. Controllable costs C. Joint costs D. Direct costs E. Indirect costs

Q: The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be: A. Floor space of each department. B. Relative number of items each department had on sale. C. Number of customers to enter each department. D. An equal amount of cost for each department. E. Total sales of each department.

Q: The allocation bases for assigning indirect costs include: A. Only physical bases. B. Only cost bases. C. Only value bases. D. Only unit bases. E. Any appropriate and reasonable bases.