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Exam 24: Performance Measurement and Responsibility Accounting

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Question 51

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Williams Co. operates three separate departments (R, S, T). The data below is provided for the current year: $\begin{array}{ll} \text {Total Sales }& \text { \$ 120,000(\$ 40,000 from each department)}\\ \text { Cost of Goods Sold } & 80,000(50 \% \text { from R; } 25 \% \text { from } \mathrm{S} ; 25 \% \text { from T) } \\ \text { Direct Expense. } & \$ 26,000(\$ 6,000 \text { from } R ; \$ 12,000 \text { from } S ; \$ 8,000 \text { from } T) \\\text { Indirect Expenses }& 9,000\end{array}$ Required: Prepare an income statement showing the departmental contributions to overhead for the current year.

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Question 52

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Rent and maintenance expenses would most likely be allocated based on:

A) Sales volume by department.
B) Number of employees in each department.
C) Square feet of floor space occupied.
D) Number of invoices processed.
E) Number of hours worked.

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

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Question 53

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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. $\begin{array} { l r } \text { Department S } & \$ 110,000 \\\text { Department T } & 213,750 \\\text { Department U } & 151,250 \\\text { Total } & \$ 475,000 \\\end{array}$

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: $\begin{array}{lrr}\text { Selling price to outside customers } & \$ & 75 \\\text { Variable cost per unit } & \$ & 50 \\\text { Total fixed costs } & \$ & 400,000 \\\text { Capacity in units } && 25,000\end{array}$ Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales. According to the formula in the text, what is the lowest acceptable transfer price from the standpoint of the selling division?

No standard rule identifies the best basis of allocating expenses across departments, so it is impossible to allocate costs in a manner that will be perceived as fair.

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 Drilling for the current period is:

In regard to joint cost allocation, the "split-off point" is:

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

Direct expenses require allocation across departments because they cannot be readily traced to one department.

Indirect expenses are allocated to departments based upon the benefits received by each department.

A challenge in calculating the total costs and expenses of a department is:

Using the information below, compute the cycle efficiency: $\begin{array}{lrl}\text { Process time } & 6.0 & \text { hours } \\\text { Inspections time } & .5 & \text { hours } \\\text { Move time } & 6 & \text { hours } \\\text { Wait time } & .9 & \text { hours } \\\text { Warehouse storage time } & 72.0 & \text { hours }\end{array}$

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

Joint costs can be allocated either using a physical basis or a value basis.

Departmental contribution to overhead is the same as gross profit generated by that department.

A unit of a business that generates revenues and incurs costs is called a:

The Linens Department of the Krafton Department Store had sales of $282,000, cost of goods sold of $173,500, indirect expenses of $19,875, and direct expenses of $41,250 for the current period. What is the Linens Department's contribution to overhead as a percent of sales?

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 the advertising cost that should be allocated to Grinding for the current period is:

Two investment centers at Marshman Corporation have the following current-year income and asset data: Investment Center B $\begin{array} { | l | r | r | } \hline & \begin{array} { r } \text { Investment } \\\text { Center A }\end{array} & \begin{array} { r } \text { Investment } \\\text { Center B }\end{array} \\\hline \text { Investment center income } & \$ 415,000 & \$ 525,000 \\\hline \text { Investment center average inv ested assets } & \$ 2,400,000 & \$ 1,950,000 \\\hline\end{array}$ - The return on investment (ROI) for Investment Center B is:

The following data is available for the Janitorial Services Department of Glitterol Co. $\begin{array} { l | l } \text { Revenues } & \$ 216,000 \\\hline \text { Cost of Sales } & 168,000 \\\hline \text { Expenses: } & \\\hline \text { Supplies-Direct } & 12,000 \\\hline \text { Salaries-Indirect Allocated } & 34,000 \\\hline \text { Rent-Direct } & 8,000 \\\hline \text { Rent-Indirect Allocated } & 4,500\end{array}$ Required: Calculate departmental contribution to overhead for the Janitorial Services Department, including the department's contribution as a percentage of revenues.