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Exam 9: Performance Measurement and Responsibility Accounting

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Question 81

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A company produces two joint products (called 301 and 302) in a single operation that uses one raw material called Fruge. Four hundred gallons of Fruge were purchased at a cost of $800 and were used to produce 150 gallons of Product 301, selling for $5 per gallon, and 75 gallons of Product 302, 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?

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Question 82

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Return on investment can be split into which of the following two measures?

A) Investment center income and profit margin.
B) Profit margin and net income.
C) Investment center average assets and investment turnover.
D) Residual income and operating income.
E) Profit margin and investment turnover.

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

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Question 83

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A department that incurs costs without directly generating revenues is a:

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:

Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. Southwestern Division sells Part AR3 to other companies for $30. The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products. The Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the Northeastern Division would require. What is the lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division?

Which of the following represents the correct formula for calculating cycle time for a manufacturer?

A lumber mill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common if the value basis is used.

Division A produces a part with the following characteristics: Division B, another division in the company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $28 per unit. If Division A sells to Division B, $1 in variable costs can be avoided. Suppose Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. From the point of view of Division A, any sales to Division B should be priced no lower than:

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. $\begin{array} { l r c } \text { Product } & \text { Pounds } & \text { Price per Pound } \\\text { Feed } & 100,000 & \$ 0.70 \\\text { Flour } & 50,000 & 2.20 \\\text { Starch } & 20,000 & 1.00\end{array}$ How much of the $120,000 cost should be allocated to feed if the value basis is used?

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 One occupies 1,500 square feet of ground-floor space, Department Two occupies 3,500 square feet of ground-floor space, and Department Three 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 $10.00 per sq. ft. for second-floor space, what annual rent expense should be charged to each department?

Cost center managers are evaluated on their success in controlling costs compared to budgeted costs.

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. $\begin{array}{llcc}& \text { Purchasing } & \text { Maintenance} & \text { Fabncation } &\text { Assembly }\\ \text {Operating costs } &\$32,000&\$18,000&\$96,000&\$62,000\\ \text { No. of purchase orders } &&&16&4\\ \text { Sq. ft. of space } &&&3,300&2,700\\\end{array}$

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:

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

A department can never be considered to be a profit center.

Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year. Department 2's contribution to overhead in dollars is: $\begin{array}{rrrrr}&&&&\text { Indirect }\\\text { Dept.} &\text {Sales } & \text { Cost of Goods Sold}&\text { Direct Expenses}&\text { Expenses }\\1 & \$ 1,000,000 & \$ 700,000 & \$ 100,000 & \$ 80,000 \\2 & 400,000 & 150,000& 40,000 & 100,000 \\3 & 700,000 & 300,000 & 150,000 & 20,000\end{array}$

What is the purpose of a responsibility accounting system?

A company rents a building with a total of 50,000 square feet, which are evenly divided between two floors. The company allocates the rent for space on the first floor at twice the rate of space on the second floor. The total monthly rent for the building is $30,000. How much of the monthly rental expense should be allocated to a department that occupies 10,000 square feet on the second floor?

Departmental contribution to overhead is the amount of sales for that department, less its direct expenses.

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.